"In finance, an exchange rate is the rate at which one currency will be exchanged for another currency."
Explanation of how exchange rates are determined and the impact they have on the economy.
Foreign Exchange Market: Understanding the structure and participants of the foreign exchange market.
Exchange Rate Fluctuation: Causes and factors that can lead to fluctuations in exchange rates.
Currency Exchange Rate Regimes: Different types of exchange rate regimes adopted by a country e.g. floating, fixed, and managed float.
Exchange Rate Determination: How exchange rates are determined through the interaction of supply and demand in the foreign exchange market.
Purchasing Power Parity: The theory that the exchange rate between two currencies should be equal to the ratio of the price levels in both countries.
Interest Rate Parity: The theory that the difference in interest rates between two currencies should be equal to the expected change in exchange rates over time.
Capital Flows: The movement of financial assets between countries that affects exchange rates.
Balance of Payment: Understanding the current account and capital account balances that impact exchange rates.
Monetary Policy: The use of various tools and techniques by government to influence the monetary system, which in turn, affects exchange rates.
Inflation: How inflation affects exchange rates and how central banks try to control inflation.
Economic Indicators: Understanding how various economic indicators like GDP, employment rate, inflation rate, etc. affect exchange rates.
Political and Geopolitical Factors: How political instability, elections, natural disasters, and geopolitical events influence exchange rates.
Speculation: Understanding how speculation in the foreign exchange market affects exchange rates.
Currency Risk Management: Understanding currency risk and how to manage it using tools like forwards, futures, options, and swaps.
Currency Manipulation: The practice of manipulating currency exchange rates by governments.
Fixed Exchange Rate: This is a type of exchange rate system where the central bank or government fixes the exchange rate of the currency against other currencies.
Floating Exchange Rate: This is a type of exchange rate system where the exchange rate of the currency is determined by market forces of supply and demand.
Managed Floating Exchange Rate: This is a type of exchange rate system where the exchange rate is not fixed but the central bank intervenes in the foreign exchange market to influence the exchange rate.
Pegged Exchange Rate: This is a type of exchange rate system where the exchange rate of a currency is fixed to the exchange rate of another currency, usually the US dollar or the euro.
Dual Exchange Rate: This is a type of exchange rate system where there are two different exchange rates for the domestic currency. One rate is used for domestic transactions while the other rate is used for international transactions.
Crawling Peg Exchange Rate: This is a type of exchange rate system where the exchange rate is adjusted periodically by a fixed amount, usually in response to inflation or other economic factors.
Target Exchange Rate: This is a type of exchange rate system where the central bank sets a target exchange rate and intervenes in the foreign exchange market to maintain the target rate.
Dirty Float Exchange Rate: This is a type of exchange rate system where the exchange rate is allowed to float, but the central bank intervenes in the foreign exchange market to smooth out extreme fluctuations.
Flexible Exchange Rate: This is a type of exchange rate system where the exchange rate is not fixed and there is no intervention by the central bank or government in the foreign exchange market.
Currency Board Exchange Rate: This is a type of exchange rate system where the central bank is required to hold a fixed amount of foreign currency reserves for each unit of domestic currency in circulation, ensuring that the exchange rate remains fixed.
"Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of the euro."
"The exchange rate is also regarded as the value of one country's currency in relation to another currency."
"For example, an interbank exchange rate of 131 Japanese yen to the United States dollar means that ¥131 will be exchanged for US$1 or that US$1 will be exchanged for ¥131."
"In this case, it is said that the price of a dollar in relation to yen is ¥131, or equivalently that the price of a yen in relation to dollars is $1/131."
"Each country determines the exchange rate regime that will apply to its currency."
"For example, a currency may be floating, pegged (fixed), or a hybrid."
"Governments can impose certain limits and controls on exchange rates."
"Countries can also have a strong or weak currency."
"There is no agreement in the economic literature on the optimal national exchange rate policy."
"In floating exchange rate regimes, exchange rates are determined in the foreign exchange market, which is open to a wide range of different types of buyers and sellers."
"The spot exchange rate is the current exchange rate, while the forward exchange rate is an exchange rate that is quoted and traded today but for delivery and payment on a specific future date."
"The buying rate is the rate at which money dealers will buy foreign currency, and the selling rate is the rate at which they will sell that currency."
"The quoted rates will incorporate an allowance for a dealer's margin (or profit) in trading."
"...or else the margin may be recovered in the form of a commission or in some other way."
"Different rates may also be quoted for cash, a documentary transaction, or for electronic transfers."
"The higher rate on documentary transactions has been justified as compensating for the additional time and cost of clearing the document."
"On the other hand, cash is available for resale immediately, but incurs security, storage, and transportation costs."
"the cost of tying up capital in a stock of banknotes (bills)."
"24 hours a day except weekends (i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday)."