How many Zambian kwachas can you get for a dollar?

If you don't know the answer, call BankAmerica Corp. or, for that matter, any of the growing number of banks trading the currencies of emerging nations.

Following international trade and investment trends, major banks have begun responding to demand for currencies off the beaten international path, such as the Mexican peso, Thai baht, Malaysian ringgit, or Botswanan pula.

Just last week, BankAmerica said it had set up a unit to trade about 75 of the "exotic" currencies.

"Trading could easily double over the next two or three years," said Jonathan Goldman, vice president, chief trader, and head of the new unit.

Bank currency traders estimated that exotics contracts in major foreign exchange centers doubled in the last three years, to about $50 billion a day.

That equals about 4% of the total $1.2 trillion traded daily on major exchanges, according to the latest survey of the Bank for International Settlements.

Trading in the exotics is growing at twice the rate of so-called hard currencies such as the Swiss franc, German mark, or British pound.

"It's an obvious evolution and one that has picked up considerable momentum over the last year," said James Borden, managing director of global foreign exchange at Bank of Boston Corp. "There is definitely a desire on the part of many foreign exchange operators to look into a broader range of currencies."

Daily trading in the Mexican peso, traders said, ranges from $1 billion to $2 billion offshore, compared to up to $10 billion within Mexico.

Volume in the Czech koruna is believed to exceed $3 billion.

"It's a serious piece of our business," said William Arnold, vice president and chief foreign exchange dealer at Chase Manhattan Corp., which set up an emerging markets trading desk three years ago. "This business will continue to increase."

Bankers cite three reasons for exotics' promise:

Trade between the industrialized and developing world is increasing rapidly, fueling demand for a broader array of currencies.

Portfolio managers looking for higher returns in the United States and Europe are pumping billions of dollars more each year into emerging markets, also creating demand for currencies that historically were traded sparsely.

Revenues from traditional foreign exchange trading are stagnating, and margins have become increasingly thin.

Traders are anticipating a sharp falloff in revenues once the European Community begins adopting a single currency in January 1999.

"Foreign exchange revenues have been lackluster for quite a while," remarked Lawrence Cohn, a banking analyst at PaineWebber Inc. "Banks are shifting resources out of European currencies and into developing world currencies."

"Technology has commoditized price and information, the once privileged position of price-makers has obviously been eroded, and overheads are going up," said Bank of Boston's Mr. Borden. "Traders are looking to broaden their product base and capture the better spreads available."

Spreads-the difference between buying and selling prices-are bigger in emerging market currencies, if only because it's usually harder to match up buyers with sellers. Currency valuations can also be much more volatile than in the hard currencies, and this volatility can offer greater opportunities for profits.

"Spreads are much bigger and competition is lower," Mr. Cohn said. "Even local banks don't provide substantial competition in many of those markets."

The exotic currencies "can move 10% to 20% either way," said BankAmerica's Mr. Goldman. The South African rand, for example, has moved up more than 6% against the dollar since Jan. 1.

An exotic currency, as traders define it, is any that is outside the Group of 7 leading industrial countries, the European Monetary System, Australia, and New Zealand.

Trading in Asian currencies tends to be centered in Singapore and Hong Kong. Eastern European currencies are largely traded in London, and Latin American currencies, led by the Mexican peso, are traded mostly out of New York.

Traders view Citicorp as the market leader, with a menu of 125 currencies. After Citi, not necessarily in order, are Chase Manhattan Corp., Bank of Boston Corp., HSBC Holdings PLC, and Standard Chartered Group. After that come a score of smaller or specialized players, such as French banks in African currencies.

It often takes an expert to know which are available and under what circumstances.

"In some countries, it's easy to get money in but hard to get it out," Mr. Goldman said.

One can both buy and sell Estonian kroons but can only sell zlotys from Poland, pulas from Botswana, the francs of Belize, and quetzals of Guatemala.

As trading broadens and markets grow, bankers noted, oddball currencies can come to be viewed as on par, or close to par, with the currency market mainstays.

"A lot of currencies called exotic that are heavily traded and have enough market makers are becoming normal," Mr. Borden noted. He cited the Hong Kong and Singapore dollars and the Malaysian ringgit as examples.

Traders also said that, as more currencies trade more widely and markets grow bigger, revenue opportunities draw more competitors into the field and profit margins start to shrink.

As one trader lamented: "Spreads keep getting thinner as the market gets more efficient."

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