currency

Examples of currency in the following topics:

• Exchange Rates

  • The price of one country's currency in units of another country's currency is known as a foreign currency exchange rate.
  • A foreign currency exchange rate between two currencies is the rate at which one currency will be exchanged for another.
  • People may need to exchange currencies in a number of situations.
  • If they have traveler's checks or a travel card in the local currency, no currency exchange is necessary.
  • A currency pair is the quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market.

• International Exchange of Money

  • The foreign exchange market is a form of exchange for international currencies that determines the relative values of different currencies.
  • It is also regarded as the value of one country's currency in terms of another currency.
  • In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency.
  • The foreign exchange market (forex, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies.
  • It also supports direct speculation in the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.

• Global finance: initial considerations

  • The price of one country's currency in units of another country's currency is known as a foreign currency exchange rate.
  • One way, known as a direct quote, is to state the number of domestic units of currency per one unit of foreign currency.
  • The foreign exchange market is generally divided into five basic currency markets based on pricing procedures ruling the exchange, the time to maturity, the degree of freedom available, the convertibility of currencies, and how the currencies are quoted (Carrada-Bravo, 2003).
  • Common ways of hedging currency risk involve:
  • structurally hedging your risk by off setting income against expenditure in the same currency

• Types of Currency

  • Since then all reserve currencies have been fiat currencies, including the U.S. dollar and the euro.
  • Currency refers to physical objects generally accepted as a medium of exchange.
  • Money in the form of currency has predominated throughout most of history.
  • In other words, modern currency has value only by government order (fiat).
  • The term fiat currency is also used when the fiat money is used as the main currency of the country.

• The political/legal environment

  • Inventories will be low and currency will be converted rapidly.
  • The exchange rate of a particular nation's currency represents the value of that currency in relation to that of another country.

• Balance of Payments

  • In all these cases, money is flowing out of the U.S. and we are losing its foreign exchange because the payments have to be made in foreign currency.
  • The BOP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned.
  • Under a fixed exchange rate system, the central bank accommodates those flows by buying up any net inflow of funds into the country or by providing foreign currency funds to the foreign exchange market to match any international outflow of funds, thus preventing the funds flows from affecting the exchange rate between the country's currency and other currencies.
  • The central bank does not intervene with a pure float to protect or devalue its currency, it allows the rate to be set by the market.

• Pricing

  • Considerable problems arise in foreign transactions because of the need to buy and sell products in different currencies.
  • Questions to consider are: What currency should a company price its products?
  • Finally, obtaining payment promptly and in a suitable currency from less developed countries can cause expense and additional difficulties.
  • How should a company approach selling to countries that have a shortage of hard currency?

• Measuring the Money Supply

  • There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions) .
  • (The narrow money supply is an earlier term used in the U.S. to describe currency held by the non-bank public and demand deposits of banks, M1).
  • MB: This is referred to as the monetary base or total currency.
  • Liquid assets include coins, paper currency, checkable-type deposits, and traveler's checks.
  • Measure MI, the most narrow of measures, includes only the most liquid forms of monetary assets; all currency and bank deposits held by a nation's public.

• Growth Through Monetary Policy

  • Where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks which are tied to a central bank, the monetary authority has the ability to alter the money supply and, thus, influence the interest rate (to achieve policy goals).
  • This entails managing the quantity of money in circulation through the buying and selling of various financial instruments, such as treasury bills, company bonds, or foreign currencies.
  • All of these purchases or sales result in more or less base currency entering or leaving market circulation.
  • In other instances, monetary policy might instead entail the targeting of a specific exchange rate relative to some foreign currency or else relative to gold.
  • For example, in the case of the United States, the Fed targets the federal funds rate, the rate at which member banks lend to one another overnight; however, the monetary policy of China is to target the exchange rate between the Chinese renminbi and a basket of foreign currencies.

• Growth Economics

  • A single currency may be quoted to compare per capita economic growth among several countries.
  • This requires converting the value of currencies of various countries into a selected currency, for example U.S. dollars.
  • One way to do this conversion is to rely on exchange rates among the currencies, for example how many Mexican pesos buy a single U.S. dollar?
  • This means that the U.S. dollar with the purchasing power it had in the U.S. in 1990 is the only currency being used for the comparison.