Kevin Nathaniel R248_ Gonzalez

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What is shadow banking and its impact on forex?

Shadow banking refers to non-traditional financial institutions—like hedge funds, private equity, or money market funds—that provide credit and liquidity outside regulated banks. These players often influence forex markets indirectly through capital flows, speculative positions, and carry trades. For example, hedge funds may use large leveraged positions in emerging market currencies, affecting volatility and liquidity. Shadow banking increases flexibility in financial systems but also adds systemic risk, as regulation is lighter. Traders monitoring global flows should pay attention to hedge fund positioning reports and capital movement data, as shadow banking significantly shapes forex sentiment during crises.