Exchange Rate

In finance, the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency. For example an exchange rate of 102 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 102 is worth the same as USD 1. The foreign exchange market is one of the largest markets in the world. By some estimates, about 3.2 trillion USD worth of currency changes hands every day.

Currency

In monetary economics Currency can refer either to a particular currency, for example British Pounds or United States Dollars, or, to the coins and banknotes of a particular currency, which actually form only a small part of the monetary base of a nation’s money supply. The other part of a nation’s money supply consists of money deposited in banks (sometimes called deposit money), ownership of which can be transferred by means of checks (cheques in the United Kingdom and Australia) or other forms of money transfer such as credit and debit cards. Deposit money and currency are ‘money’ in the sense that both are acceptable as a means of exchange, but money need not necessarily be ‘currency’.

Historically, money in the form of currency has predominated. Usually (gold or silver) coins of intrinsic value commensurate with the monetary unit (commodity money), have been the norm. By contrast, modern currency, as fiat money, is intrinsically worthless. The prevalence of one type of currency over another in commodity money systems has arisen, usually when a government designates through decrees, that only particular monetary units shall be accepted in payment for taxes.

Foreign Exchange Market

The foreign exchange market (currency, forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when worldover countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system until 1971.

Exchange Rate Regime

The exchange rate regime is the way a country manages its currency in respect to foreign currencies and the foreign exchange market. It is closely related to monetary policy and the two are generally dependent on many of the same factors.

Money Supply

In economics, money supply or money stock, is the total amount of money available in an economy at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation and demand deposits.

Money supply data are recorded and published, usually by the government or the central bank of the country. Public- and private-sector analysts have long monitored changes in money supply because of its possible effects on the price level, inflation and the business cycle.

Floating Exchange Rate

A floating exchange rate or a flexible exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency. The opposite of a floating exchange rate is a fixed exchange rate.

Exchange Rate

In finance, the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency. For example an exchange rate of 102 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 102 is worth the same as USD 1. The foreign exchange market is one of the largest markets in the world. By some estimates, about 3.2 trillion USD worth of currency changes hands every day.

Retail Forex

In financial markets, the retail forex (retail off-exchange currency trading or retail FX) market is a subset of the larger foreign exchange market. This "market has long been plagued by swindlers preying on the gullible," according to The New York Times. Whilst there may be a number of fully regulated, reputable international companies that provide a highly transparent and honest service, it's commonly thought that about 90% of all retail FX traders lose money.

Forex Swap

In finance, a forex swap (or FX swap) is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward).

Currency Band

The currency band is a system of exchange rates by which a floating currency is backed by hard money.

A country selects a range, or "band", of values at which to set their currency, and returns to a fixed exchange rate if the value of their currency shifts outside this band. This allows for some revaluation, but tends to stabilize the currency's value within the band. In this sense, it is a compromise between a fixed (or "pegged") exchange rate and a floating exchange rate. For example, the exchange rate of the renminbi of the mainland of the People's Republic of China has recently been based upon a currency band; the European Economic Community's "snake in the tunnel" was a similar concept that failed, but ultimately led to the establishment of the European Exchange Rate Mechanism (ERM) and ultimately the Euro.

Dollar

The dollar (often represented by the dollar sign: "$") is the name of the official currency in several countries, including the Australia, New Zealand, The United States and Zimbabwe.