Foreign Currency Exchange Rates
Foreign currency exchange rates are set in the major Forex markets of the world which are London, New York and Tokyo. Forex markets were developed to facilitate international trade. Foreign currency exchange rates vary according to the perceived value of one currency versus another. Those doing business across international borders use tools such as Forex currency options trading to hedge the risk that foreign currency exchange rates will change and cause business losses.
How Many Yen to the US Dollar?
As in all markets, pricing is based on supply and demand. If the US Federal Reserve backs off its quantitative easing financial stimulus program, interest rates in the US will go up. This will make the US dollar more attractive to Forex traders. The demand for US dollars goes up. A trader who is holding Yen, British pounds, Euros or other currencies may wish to buy US dollars but only at the right price. This is the supply issue. Traders look at the relative strength of the economies of the two nations whose currencies they trade. They look at balances of payments, national debts or reserves, monetary policy of the respective central banks, employment numbers and national politics. Traders also consider what the market as a whole is doing. Technical analysis of Forex pairs allows traders to profit from the daily and even minute to minutes changes in foreign currency exchange rates. Technical analysis is based on statistics and is more accurate when trading volume and liquidity are high. Thus traders use these tools in trading the major Forex currencies, one against another.