The foreign exchange rate, also known as the exchange rate, refers to the exchange rate between the currency of one country and the currency of another country, usually expressed by the exchange ratio between the two currencies.
For example, EUR/USD = 1.3305 indicates that 1 euro is equal to 1.3305 USD.
In the foreign exchange market, the exchange rate is usually expressed by 5 digits, such as USD/JPY (USD/JPY) 117.37;
The smallest unit of change in the exchange rate is “point”, and the change of one digit in the last digit of the exchange rate is called 1point.
If AUDUSD changes from 0.7727 to 0.7732, we say Aussie gains 5 points;
Usdjpy changed from 117.37 to 116.98. We say USDJPY fell 39 points, or the yen gained 39 points.
¢Ü Common currency name According to international practice, usually use 3 English letters to represent the name of the currency, the following is the code of common currency:
USD USD Yen JPY British Pound GBP Euro EUR AUD AUD Swiss Franc CHF Hong Kong Dollar HKD Singapore Dollar SGD RMB The method of marking the price of one currency as the basis of another currency is called the marking method of exchange rate.
There are usually three methods: (1) Direct price method refers to a certain unit of foreign currency as the standard to calculate the amount of domestic currency payable.
This is equivalent to calculating how much local currency should be paid for a given unit of foreign currency.
Most countries in the world, including our country, have adopted the direct list price method.
In the foreign exchange market, the dollar-denominated method, which is used to show how much a dollar is exchanged for other currencies, is also called the direct quotation method.
For example, Japanese yen, Swiss franc, Canadian dollar, Singapore dollar, Hong Kong dollar, etc., are all directly priced.
One caveat when investing in such currencies: Contrary to common wisdom, a lower number indicates a more expensive currency.
¢Ú Indirect price method refers to a certain unit of domestic currency as the standard, to calculate the amount of foreign currency receivable method.
In the foreign exchange market, the indirect quotation method is used to show how much a non-dollar currency is exchanged for dollars.
For example, euro, British pound, Australian dollar and so on all adopt indirect pricing method.
(3) Cross-bid method refers to the price between other currencies other than the domestic currency.
In the foreign exchange market, the exchange rate between non-US dollar currencies is usually referred to as cross-bid, also known as cross exchange rate.
Such as euro versus yen, yen versus Hong Kong dollar, etc.
Each currency in the world has a three-digit subtitled abbreviation that is accepted by the international financial market. For example, the abbreviation of RMB is CNY (China Yuan), where the first two letters of CN stand for the abbreviation of the country (China), and the third letter (Y) stands for the name of the currency unit of the country or region (Yuan).
When you trade in the foreign exchange market, you are buying and selling “currency exchange”, such as euro/dollar (EUR/USD) or pound/yen (GBP/JPY).
We can think of each currency pair as a tug of war between different currencies.
Exchange rates fluctuate depending on how strong or weak a currency is at a given moment.
We refer to a currency pair that contains the U.S. dollar as a “major” or “straight” pair.
These currency pairs all contain the U.S. dollar and are the most frequently traded.
These currency pairs are among the most liquid and most widely traded in the world.
We refer to currency pairs that do not contain dollars as “cross currency pairs”, or “crosses”.
The most actively traded cross-currency pairs consist of three major currencies besides the dollar: the euro, the yen and the pound.
The chart below shows the ten most actively traded currencies.
The US dollar was the most traded currency, accounting for 84.9 per cent of all transactions.
The euro ranks second at 39.1 percent, while the Japanese yen is third at 19.0 percent.
As you can see, the top currencies dominate the list.
So why, many wonder, does the dollar play such a central role in foreign exchange markets?
¡ï The United States is the world’s largest economy;
¡ï The dollar is the global reserve currency;
¡ï The United States has the largest and most liquid financial markets in the world;
¡ï The United States has an ultra-stable political system;
¡ï The United States is the world’s only military superpower;
The US dollar is the main currency medium for international cross-border transactions.
Oil, for example, is priced in dollars.
So if Mexico wants to buy oil from Saudi Arabia, it can only do so in dollars.
If Mexico had no dollars, it would have to sell pesos before buying them.
1. From the perspective of setting exchange rates: a key freely convertible currency that is most commonly used in international economic transactions and takes up the largest proportion in foreign exchange reserves is usually selected as the main object, and compared with the currency of that country, the exchange rate is the basic exchange rate.
A key currency generally refers to a world currency, widely used for pricing, settlement, reserve currency, freely convertible and internationally accepted currency.
The key currency is usually the US dollar, using the country’s currency against the dollar as the benchmark rate.
The RMB benchmark exchange rate is published by the People’s Bank of China as the benchmark exchange rate of major trading currencies (US dollar, Japanese yen and Hong Kong Dollar) against RMB on that day, namely the central parity of market trading, according to the weighted average price of US dollar against RMB in the inter-bank foreign exchange market the previous day.
2. After the basic exchange rate is formulated, the exchange rate of the local currency against other foreign currencies can be calculated through the basic exchange rate, and the exchange rate obtained in this way is called the cross exchange rate, or GossRate.
For example, on March 5, 2002, the People’s Bank of China announced the benchmark exchange rate of USD/RMB=8.2767, while USD/CAD=1.5913 in the international market. In this way, CAD/RMB=5.2012 can be calculated, indicating that 1 Canadian dollar can be exchanged for 5.2012 RMB.
2. From the perspective of exchange Rate system: (1) Fixed Rate means that the exchange rate between one country’s currency and another country’s currency is basically fixed, and the exchange rate fluctuation is very small.
Under the gold standard system, the fixed exchange rate is determined by the gold content of the gold coinage of the two countries. The limit of fluctuation is the exchange rate level causing the import and export of gold, and the range of fluctuation is the cost of transporting gold between the two countries.
Under the Bretton Woods monetary system from the end of World War II until the early 1970s, the currencies of IMF member countries were set to contain gold and exchange rates against the dollar.
Exchange rate fluctuations are strictly limited to 1 percent above or below the official rate.
Since the exchange rate fluctuates very little, it is also fixed.
(2) Floating Rate means that the monetary authority of a country does not regulate the official exchange rate of its currency against other currencies, nor does it have any upper or lower limits of exchange rate fluctuations. The local currency fluctuates freely and is determined by the supply and demand relations in the foreign exchange market.
When the foreign currency supply exceeds the demand, the foreign currency depreciates, the domestic currency appreciates, and the foreign exchange rate declines.
On the contrary, foreign exchange rates rose.
The monetary authorities intervened appropriately in the foreign exchange market to keep the exchange rate from fluctuating too much in order to maintain the stability and development of the country’s economy.
Bottom line: What is foreign exchange rate?
What are the methods of marking the exchange rate?
These two questions are the basic knowledge of foreign exchange introduction. The advantages of foreign exchange speculation have been mentioned above, that is, the foreign exchange market is a very free and open market, and foreign exchange investors around the world can trade at their own will.
So for starters, what is a foreign exchange rate?
What are the methods of marking the exchange rate?
This kind of problem must be mastered!
I believe you through the introduction of Xiaobian above also answered their own questions.
