Foreign Currency Exchange Rates

1,151 views
1,043 views

Published on

Foreign Currency Exchange Rates

http://www.theforexnittygritty.com/forex-trading/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.

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,151
On SlideShare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
53
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Foreign Currency Exchange Rates

  1. 1. Foreign Currency Exchange Rates By www.TheForexNittyGritty.com
  2. 2. Foreign currency exchange rates are set in the major Forex markets of the world which are London, New York and Tokyo. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  3. 3. Forex markets were developed to facilitate international trade. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  4. 4. Foreign currency exchange rates vary according to the perceived value of one currency versus another. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  5. 5. 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. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  6. 6. How Many Yen to the US Dollar? http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  7. 7. As in all markets, pricing is based on supply and demand. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  8. 8. If the US Federal Reserve backs off its quantitative easing financial stimulus program, interest rates in the US will go up. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  9. 9. This will make the US dollar more attractive to Forex traders. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  10. 10. The demand for US dollars goes up. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  11. 11. A trader who is holding Yen, British pounds, Euros or other currencies may wish to buy US dollars but only at the right price. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  12. 12. This is the supply issue. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  13. 13. Traders look at the relative strength of the economies of the two nations whose currencies they trade. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  14. 14. They look at balances of payments, national debts or reserves, monetary policy of the respective central banks, employment numbers and national politics. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  15. 15. Traders also consider what the market as a whole is doing. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  16. 16. Technical analysis of Forex pairs allows traders to profit from the daily and even minute to minutes changes in foreign currency exchange rates. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  17. 17. Technical analysis is based on statistics and is more accurate when trading volume and liquidity are high. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  18. 18. Thus traders use these tools in trading the major Forex currencies, one against another. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  19. 19. The major currencies are these: United States Dollar USD Euro EUR British Pound GBP Swiss franc CHF Canadian Dollar CAD Australian Dollar AUD http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  20. 20. Eighty-five percent of all foreign currency trades include the US dollar. In fact, most minor currencies only trade versus the dollar. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  21. 21. Thus foreign currency exchange rates of one minor currency versus another are really the rate of one currency versus the dollar and the rate of the dollar versus the second currency. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  22. 22. What Will the Future Bring? http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  23. 23. When an airline in South Korea buys a jet from Boeing it will pay in US dollars upon delivery. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  24. 24. The order is placed and a contract is signed. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  25. 25. However, the plane may not be available for a year at which time the South Korean airline will need to convert its South Korean Won (KRW) to US dollars (USD) to make payment. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  26. 26. Let us say that the price of the jet is $40 million USD. At the current exchange rate: 40,000,000.00 USD = 42,689,767,200.00 KRW http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  27. 27. The Korean airline will convert 42.7 billion won to make the purchase of a $40 million jet. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  28. 28. However, the company cannot simply put this amount of money in the bank and wait because foreign currency exchange rates vary over time. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  29. 29. The common approach is for the buyer, in the case the airline, to purchase call options on the US dollar with South Korean won. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  30. 30. If the value of the dollar rises against the won the airline will simply execute the call contract which will give it the right to buy dollars with won at the original contract price. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  31. 31. If the dollar falls against the won in a year the company lets the call contract expire and simply buys the necessary number of dollars but with fewer won than expected and receives the airplane. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates
  32. 32. Options allow companies doing business across borders to hedge risk on one hand and allow currency speculators to engage in profitable currency trading as well. http://www.theforexnittygritty.com/ forex-trading/foreign-currencyexchange-rates

×