currency

Examples of currency in the following topics:

• Overview of Exchange Rates

  • An exchange rate between two currencies is the rate at which one currency will be exchanged for another.
  • It is also regarded as the value of one country's currency in terms of another currency.
  • Conversely, if the foreign currency is strengthening, the exchange rate number increases and the home currency is depreciating.
  • In other words, the currency will depreciate.
  • This is presented by a higher exchange rate if the exchange rate is quoted as home currency / 1 foreign currency.

• Introducing Exchange Rates

  • In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another.
  • In finance, an exchange rate (also known as a foreign-exchange rate, forex rate, or rate) between two currencies is the rate at which one currency will be exchanged for another.
  • It is also regarded as the value of one country's currency in terms of another currency .
  • Most trades are to or from the local currency.
  • 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 the currency.

• 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.

• Exchange Rate Systems

  • One of the key economic decisions a nation must make is how it will value its currency in comparison to other currencies.
  • A currency that uses a floating exchange rate is known as a floating currency.
  • A fixed exchange rate system, or pegged exchange rate system, is a currency system in which governments try to maintain a currency value that is constant against a specific currency or good.
  • In a fixed exchange-rate system, a country's government decides the worth of its currency in terms of either a fixed weight of an asset, another currency, or a basket of other currencies.
  • Regimes also peg to other currencies.

• Real Versus Nominal Rates

  • For example, a currency can be measured in terms of other currencies, or it can be measured in terms of the goods and services it can buy.
  • An exchange rate between two currencies is defined as the rate at which one currency will be exchanged for another.
  • Therefore, changes in the nominal value of currency over time can happen because of a change in the value of the currency or because of the associated prices of the goods and services that the currency is used to buy.
  • The nominal rate is set on the open market and is based on how much of one currency another currency can buy.
  • Imagine there are two currencies, A and B.

• Fixed Exchange Rates

  • A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime where a currency's value is fixed against the value of another single currency, to a basket of other currencies, or to another measure of value, such as gold.
  • A fixed exchange rate is usually used to stabilize the value of a currency against the currency it is pegged to.
  • This is one reason governments maintain reserves of foreign currencies.
  • This places greater demand on the market and pushes up the price of the currency.
  • This method is rarely used because it is difficult to enforce and often leads to a black market in foreign currency.

• Fixed Exchange Rates

  • For example, Argentina, Bermuda, and Hong Kong pegged their currencies to the U.S. dollar while Bosnia and Herzegovina, Bulgaria, and Estonia fixed their currencies to the euro.
  • Furthermore, a central bank must hold a cache of currency reserves to buy or sell currencies to balance its currency flows that maintain the fixed exchange rate.
  • Thus, a central bank requires a cache of currency reserves.
  • Consequently, the UAE central bank must buy dirhams from the currency exchange market.
  • A country experiences a continuous outflow of capital, and the central bank does not have the reserves to buy its currency from the currency exchange markets.

• Managed Float

  • Almost all currencies are managed since central banks or governments intervene to influence the value of their currencies.
  • So when a country claims to have a floating currency, it most likely exists as a managed float.
  • For example, if a currency is valued above its range, the central bank will sell some of its currency it has in reserve.
  • By putting more of its currency in circulation, the central bank will decrease the currency's value.
  • If a currency floats, there could be rapid appreciation or depreciation of value.

• Finding an Equilibrium Exchange Rate

  • Countries have a vested interest in the exchange rate of their currency to their trading partner's currency because it affects trade flows.
  • When the domestic currency has a high value, its exports are expensive.
  • The asset market model views currencies as an important element in finding the equilibrium exchange rate.
  • The asset market model of exchange rate determination states that the exchange rate between two currencies represents the price that just balances the relative supplies of, and demand for, assets denominated in those currencies.
  • They include investments, such as shares of stock that is denominated in the currency, and debt denominated in the currency.