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The euro looks like something new, but it is not. It was preceded by numerous monetary unions in Europe and beyond.

First, countries such as the United States and the USSR are (or, in the latter case, were) currency unions. The single currency has been used or used in vast territories with previously different political, social and economic actors. For example, the U.S. Constitution did not provide for the existence of a central bank. The Founding Fathers, such as Madison and Jefferson, opposed its existence. The Central Monetary Institution (modeled after the Bank of England) was not established until 1791. But Madison (as president) expired his grant in 1811. It was revived in 1816 – to die in a new way. It took a civil war to form a monetary union. It was not until 1863 that regulation and supervision of banks was established, and a distinction was made between state and state banks.

At that time, 1,562 private banks printed and issued banknotes, some of which were not legal tender. In 1800 there were only 25 of them. The same thing happened in the principalities that later formed Germany: 25 private banks were established only between 1847 and 1857 with the clear intention of printing banknotes that would circulate as a legal means of payment. In 1816, 70 different (mostly foreign) currencies were used in the Rhine region alone.

The tidal wave of banking crises in 1908 led to the formation of the Federal Reserve, and it took 52 years before the full monopoly of the money emission system was maintained.

What is a monetary union? Is it enough to have a common currency with free and guaranteed convertibility?

Two additional conditions apply: that the exchange rate is effective (realistic and therefore not subject to speculative attacks) and that the members of the Union are pursuing monetary policy.

In fact, history shows that the state of the common currency, although preferable, is not a prerequisite.

In fact, history shows that the state of the common currency, although preferable, is not a prerequisite. The Union may contain “several currencies that can be fully and permanently converted into each other at irrevocably fixed exchange rates,” which essentially means the existence of a common currency of different denominations, each of which is printed by another member of the Union. What seems more important is the relationship (expressed by the exchange rate) between the Union and other economic actors. The currency of the Union should be converted to other currencies at a certain exchange rate (may fluctuate, but always one), determined by a single exchange rate policy. This should apply to the entire territory of the single currency – otherwise the arbitrators will buy it in one place and sell it in another, and will have to introduce currency controls that eliminate free convertibility and cause panic.

This is not a theoretical dispute – and therefore there is no need for it. In the past, ALL monetary unions failed because they allowed them to exchange their currency (currency) (for foreign currency) at different rates depending on where they were converted (to what part of the currency union).

“Soon the whole of Europe, except England, will have only money.” William Badget, editor of the famous British magazine The Economist, wrote about it. However, it was written 120 years ago, when the UK was already discussing the introduction of a single European currency.

Joining a monetary union means abandoning independent monetary policy and, consequently, a significant part of national sovereignty. The Member State no longer controls its money supply, inflation, interest rates or exchange rates. Monetary policy is transferred to the Central Monetary Authority (European Central Bank). The common currency is a mechanism for transmitting economic signals (information) and expectations, often through monetary policy. For example, in a monetary union, the fiscal debauchery of several members often leads to the need to raise interest rates to avoid inflationary pressures. This need arises precisely because these countries share a common currency.

There are no more monetary unions that have not gone down this path.

Currency unions, as we have already said, are not news. Since the days of ancient Greece and medieval Europe, people have felt the need to create a single means of exchange. However, these first monetary unions did not have the characteristics of modern alliances: for example, they had neither a central monetary authority nor monetary policy.

The first truly modern example could be the New England Colonial Monetary Union.

Colonies of New England (Connecticut, Massachusetts, New Hampshire and Rhode Island) accepted each other’s paper money as a legal means of payment until 1750. These banknotes were even accepted as tax payments by the governments of the colonies. Massachusetts has been the dominant economy and has maintained this position for almost a century. It was the envy that put an end to this very successful settlement: other colonies began to print their own records outside the union kingdom. Massachusetts bought out all of its paper money in 1751 and paid for it in cash. It established a monometallic (silver) standard and no longer accepted paper money from the other three colonies.

The second and most important experiment was the Latin Monetary Union. It was a purely French apparatus designed to promote, strengthen and increase its political power and monetary influence. Belgium adopted the French franc when it gained independence in 1830. It was natural that France and Belgium (with Switzerland) pushed others to join them in 1848. Italy followed in 1861, and the last were Greece and Bulgaria (!) in 1867. they formed a bimetallic currency union known as the Latin Monetary Union (UML).

LMU seriously flirts with Austria and Spain. The founding treaty was not officially signed until December 23, 1865 in Paris.

The rules of this Union were somewhat peculiar and in a sense contradicted generally accepted economic ideas.

Unofficially, French influence extended to the 18 countries that took the gold franc as their monetary base. Four of them agreed on the rate of converting gold into silver and minted gold coins, which were legal tender in all cases.

Currency markets or other names by which it is known, such as Forex, FX or foreign exchange markets, have existed since a country or region announced that it was trading goods or services with each other. After the goods were exchanged for the currency of the local economy, the trader needed a way to convert them back into the local currency. So, the beginning of Forex markets.

Today’s markets operate all over the world in every country in the world where each country’s currency is bought and sold daily. The value of a particular currency can rise and fall during the day depending on many factors. Currency markets are open about 5.5 days a week and these days are always open anywhere in the world.

Reasons to invest in currency markets:

1. The ability to attract relatively small investments and control large amounts of foreign currency.
2. Most Forex brokerage firms do not charge a transaction fee.
3. The ability to buy and sell at will because of a very large market.
4. Unstable markets create conditions in which sophisticated investors can make huge profits.
   The ability to reduce risk by using available tools.
5. Whether the exchange rate goes up or down, you can still make money.

Forex trading:

The main thing in any investment – to make money. In other words, you want to buy cheaply and sell expensively. Investing in FX is no different. The vast majority of investments are made by people or institutions with no intention of actually taking possession of the currency. They are just trying to use a reasonable assumption to determine in which direction the currency will move, and get a profit from it.

Currencies are always traded in pairs. You can sell U.S. dollars and buy euros or vice versa. Remember that in order to really make a profit in the foreign exchange markets, you must have a plan to recover the profits earned in the currency of your country. Let’s say you live in the United States and invest in euros and then buy them. Your next deal may be in the Japanese yen, where you also made a big profit by exchanging euros for the yen.

The usual investment measure is called ROI. Whether you are investing in a currency, real estate or business venture, this is a very important consideration to consider in all investment transactions. There are very safe forms of investment that are considered risk-free, such as U.S. Treasury bonds. For an investment in a currency to be considered a good investment, you must be able to make more than a little more profit than investing in U.S. bonds.

The main currencies and the method of determining exchange rates:

The five major currencies are the most frequently traded. These are the US dollar (USD), the euro (EUR), the Japanese yen (JPY), the British pound (GBP) and the Swiss franc (CHF). Some funds also consider the Australian dollar (AUD) the main currency. At some point in the near future, we at least hope that the Chinese Government will lift existing restrictions on trade in their national currencies and allow it to trade freely.

As we mentioned earlier, currencies are always traded in pairs. The initial currency of the pair is called the base currency, and the next currency is called a quote or counter currency. The basic currency is a denominator, so the numerator or currency of the quote is the numerator of the relationship. The value of the base currency is always one. Thus, the exchange rate corresponds to the part of the counter currency that must be paid for the purchase of the base currency.

The purchase price of the opposite currency is always lower than the sale price. This is due to the fact that the offer price, which indicates the amount that will be received in the currency of the account or quotes when selling a unit of the base currency, is always lower than the offer price, which indicates the amount to be paid to the counter. or specify the currency when buying a unit of the base currency.

An example of a transaction might be the following. The exchange rate bid/offer offer EUR/USD in your bank may be 1.1015 / 1.2015, which corresponds to a spread of 1000 points (also called items, one item, 0.0001). The smaller the spread, the better for the investor. The reason is that in order to make a profit, the currency must make a small move.

Pros and cons of the mark-up:

The term “margin” basically means a loan provided by a brokerage firm to an investor who is its client. As with all loans, interest is paid on this loan. The more the outstanding loan, the higher the interest expense of the loan.

There are many ways to use margin against a currency investor. In fact, the main reason that novice investors do not succeed in the currency markets is ignorance of margins. The good news is that margins can work for the investor, bringing extremely large profits with very small investments.

Learning how to make margins work for you, not against you, is one of the most important concepts that a Forex trader should understand. Fortunately, today there are many excellent Forex courses that explain this important concept in detail.

An example of how this can work is when an investor takes a long-term position in a currency with a large margin. If they held this currency for several months and made a small profit from the sale, they could still lose money on investments because of interest fees associated with borrowed funds, called margin.

If you plan to trade in foreign exchange markets, it is imperative that your understanding of the advantages and disadvantages of using margins is at the highest level. There are other methods that can be used instead of margins that can bring the same large profit with very small investments. If the new trader had no other reason than to understand the margin, it would be wise to sign up for a course that teaches all the intricacies of its use.

How to use leverage to finance your Forex trading:

Using margins is, of course, a way to use relatively small investments in potentially larger profits, as we have seen before. But this method carries significant risks and needs to be understood at the highest level in order to use it successfully.

There are other ways to increase income:

1. Transfer
2. Futures
3. Options
4. Spot Market
5. Spread bet
6. Contracts for difference

The information presented here is for Forex/Currency traders. This information is also useful for anyone who wants to understand the factors that determine the value of the currency. For a currency trader, this understanding is necessary to develop an analysis of currency trends for a particular country. Identifying accurate currency trends is the key to successful Forex trading.

What determines the value of a country’s currency actually depends on the supply and demand for that currency. When a certain currency of a country is in high demand from buyers such as travelers, governments and investors, it increases the value of the country’s currency. The following factors can have a positive or negative impact on the demand for a particular currency. Let’s look at these factors.

1) Currency printing:

If a country prints an excessive amount of currency, more than usual, it can reduce the value of the currency. Every time you have more than something, it can reduce its value. This is true if you are talking about currencies or commodities such as iron ore, crude oil, coal, gold, silver and platinum. A large amount of currency in circulation can reduce the value of the currency. A small amount of currency in circulation can add value to the currency.

2) Current state of the economy:

If the country’s economy is not in order, it can reduce the demand for the currency of that country. In particular, we are talking about the unemployment rate, the level of consumer spending and the pace of business expansion taking place in the country. High unemployment, lower consumer spending, along with less business expansion mean a poor economy and a lower currency.

It is also necessary to take into account the potential of the country’s economic growth. If the potential is great, the value of its currency should increase. In addition, if a country produces goods that other countries want to buy, it can increase the value of that country’s currency.

3) The price of foreign goods:

Prices for foreign goods are tied to the economy. If a foreign company sells goods in the country that are cheaper than comparable goods produced in that country, it could be detrimental to that country’s economy. A bad economy leads to a decrease in demand for the currency of this country, which reduces its value.

4) The political circumstances of the country:

To what extent is there political corruption in the country? How do political affairs affect the economy of this country? In a country where corrupt politicians are known, the value of its currency may fall.

5) What a mysterious country:

A country that trades with a high level of secrecy, at least as noted by those outside the country, can lead to a fall in the value of its currency. In other words, if little is known about the country because of media restrictions in this country, it can reduce the value of its currency.

6) The national debt of the country:

How well do politicians solve the sovereign debt problem? Are politicians causing an increase in public debt? In a democratic society, the national debt must be paid by the taxpayer. Tax increases reduce the purchasing power of society, which negatively affects the economy. In this case, the value of the currency will decrease.

7) Popularity of presidents:

If the president is popular, it can increase the demand for the currency. If the president’s popularity declines due to the government’s unpopular policies, it could lead to lower demand for the currency and a subsequent decline in its value.

8) War and terrorist attacks:

A terrorist attack can increase the likelihood of war. War or high potential war can reduce the demand for currency simply because war is depleting the economy. Wars are expensive and must be paid for by the taxpayer. In wartime there simply can be no growing economy. Consequently, war reduces the value of the currency.

9) Government growth:

Is the government growing too fast and developing? The new growth of development departments and the creation of unnecessary programs costs money. Again, taxpayers will have to pay for new growth, which in the long run will negatively affect the economy. The spread of the government can reduce the value of the country’s currency.

10) Tax cuts for consumers:

Tax cuts can stimulate the economy as long as the consumer spends the extra money he has. However, excessive tax cuts can also lead to high demand for goods, which can lead to higher prices, which can lead to inflation and the desire to buy cheaper foreign goods. But in general, tax cuts have always been good for the economy, which can lead to an increase in demand for the currency of this country.

11) Interest rate:

A higher interest rate means more demand for the currency. Foreign investors in the currency prefer a higher interest rate. The same principle applies when you are looking for the highest interest rate when depositing money into a savings account. This increase in demand for the currency leads to an increase in its value.

12) Housing market:

If the housing market is in recession, it means that the asking price of the seller will be lower, and with the knowledge that the person’s house is worth less, consumer spending will decrease. This has a negative impact on the economy. Again, poor economic conditions cause the demand for the currency to fall, leading to a drop in its value.

13) Positive or negative perception:

How currency buyers perceive the parameters described above can determine the degree of demand for the currency. Whether perception is correct or not is not as important as perception itself. Perception – that’s what determines whether the buyer of the currency decides to buy or sell the currency.

In conclusion, the factors presented here determine the degree of demand for the currency and, consequently, its value. There are other factors, such as increased production, the degree of entrepreneurship in the country, employment growth and even weather, and this affects the agricultural sector, energy consumption and the economy, the local economy.

There are many things in the world that make you happy. One such company is currency trading. You can make good money with this business. You should be well versed in business and know the basic characteristics of currency trading.

In the past, only financial giants and large multinational corporations were allowed to trade currency. Now technological innovations have made currency trading easy for everyone. You just need to be online and maybe exchange currency.

Forex is the name given to this foreign exchange market, where the powerful currencies of individual developed countries are traded. These currencies include U.S. dollars, sterling, euros and several others. You don’t need to store any of these currencies for currency trading.

Currency trading depends on credit contracts. All transactions in the commercial market are regulated by the word of honor. All traders in the market rightly adhere to these honest words.

You should be familiar with the usual conditions of this market before you start trading currency online. Sometimes you may lose your capital investment in this foreign exchange market due to lack of knowledge.

There are always ups and downs in the forex market. These fluctuations in the foreign exchange market are the basis of profit and are caused by various factors. You are selling currency with a lower interest rate. This fund should be used to buy another currency with higher interest rates. This difference in interest rate will bring you the profit for which you are in the foreign exchange market.

The monetary value of a particular currency depends on its supply and demand. Foreigners who visit your country need your country’s currency to buy goods and other expenses.

Similarly, locals in your country planning to travel abroad will need the currency of their destination country. Thus, the value of the currency fluctuates with the penetration of foreign currency in a particular country.

The market position of the currency is also responsible for fluctuations in its value. People buy and sell certain currencies based on speculation in the foreign exchange market.

Similarly, locals in your country planning to travel abroad will need the currency of their destination country. Thus, the value of the currency fluctuates with the penetration of foreign currency in a particular country.

The market position of the currency is also responsible for fluctuations in its value. People buy and sell certain currencies based on speculation in the foreign exchange market.

The market value of a particular currency also points to the health of the economy of the country to which it belongs. The high value of the currency is a sign of a healthy economy in the country concerned.

Let’s sum up the advantages of currency trading. You don’t have to have huge capital to start trading currencies, although in the past the market has been limited to corporate investors. You can even make a huge profit in just one trade if the market is in your favor.

If you have enough knowledge about currency trading, you risk trading on Forex with minimal risk.

U.S. dollar as U.S. currency

The official U.S. currency in the United States is the U.S. dollar, represented by the symbol $ and known in various parts of the world under several nicknames, some of which are the most common: dollar, paper, dollar, pulp and bread. This coin is probably the only one that is also identified by the names of presidents, depending on the value of the banknote. This is the U.S. dollar, which has the honor of being the best-selling currency on the currency market, where it is encoded as the U.S. dollar and is also one of the major reserve currencies in the world. This currency is available in the form of banknotes and coins of various dignity, with 1/10 dollar is called a ten-cent, 1/100 – a cent, and 1/1000 – a million.

History of the U.S. currency

The U.S. dollar as a U.S. currency is also older than the U.S. independence since it was first issued as the U.S. currency in 1792 to resemble the Spanish dollar. Before independence, it was customary to call these coins dog dollars and lion dollars, and after this era the dollar’s path was marked by the introduction and measurement referring to silver and gold standards. During the Civil War of 1862, paper money was first released and silver was named the continental currency. Gradually, gold and silver coins were completely confiscated, and in 1971 the U.S. dollar was released to international currency markets. The largest dollar bills were printed in 1934, but were eventually released to the market instead of small cotton banknotes. fibrous paper.

US dollar vs. inflation/deflation

Since it is a standard currency for trade and commerce worldwide, even the slightest change in the value of the US dollar can have a ripple effect on economies around the world. The general rule is that the decline in the value of the US dollar indicates an inflationary trend, which means higher prices for goods and services. This occurred during the Civil War and the two world wars, forcing the Federal Reserve to take the necessary steps to counter the inflation caused by wars.

US dollar vs. inflation/deflation

Since it is a standard currency for trade and commerce worldwide, even the slightest change in the value of the US dollar can have a ripple effect on economies around the world. The general rule is that the decline in the value of the US dollar indicates an inflationary trend, which means higher prices for goods and services. This occurred during the Civil War and the two world wars, forcing the Federal Reserve to take the necessary steps to counter the inflation caused by wars. On the contrary, the Great Depression of 1930 caused 30% deflation in the economy, which required a revision of the measures. The 1970s were marked by a stagflation of the value of the US currency, followed by an increase in inflation, which was eventually brought under control by keeping inflation low and stable as opposed to zero inflation policies.

Federal Reserve Bank and U.S. Currency

The main intention of the creation of the Federal Reserve Bank in 1913 was to predict the formation of an elastic currency that would be volatile enough to undergo significant changes even in the short term. Since its inception, the bank has been able to achieve its goal easily, as it has been able to guarantee a combination of price stability and the constant value of the US dollar. However, he had to rethink his policies to counter the widespread deflation caused by the Great Depression, and after World War II and the collapse of the Bretton Woods system, the responsibility for maintaining the value of the U.S. currency was shifted to the bank. Banknotes issued by the Federal Reserve Bank are similar to cheques, and new dollar bills are created and put into circulation by the bank to facilitate the purchase of new debt.

Indicators that determine the value of the U.S. currency

The US dollar, as one of the most influential currencies in the world, is influenced by many factors, each of which can be considered equally important for determining its value.

Indicators that determine the value of the U.S. currency

The U.S. dollar, as one of the most influential currencies in the world, is influenced by many factors, each of which can be considered equally important for determining its value. While some economic analysts believe that trade and investment balance plays an important role, others attach greater importance to political factors such as geopolitical events, government expansion, U.S. elections and terrorist attacks as factors determining the value of the U.S. currency. The fact that the US dollar is the main reserve currency affects its value, as the strength of other economies, as well as shocks and instability in countries around the world, can also cause fluctuations. While some of the notable international factors include the euro and oil trading, some domestic factors that have the same impact are domestic inflation, the U.S. economy and U.S. financial markets.

The effect of cruising speed

The two best-selling currencies in the world are the U.S. and euro currencies, so any non-U.S. dollar currency is called the exchange rate. Although the US dollar is not part of the currency pair, it has a significant impact on the cross-rate for other non-traditional trading pairs, as the value of most international currencies is ultimately determined by an increase or a decrease. U.S. dollar movement. Another cross-effect of the dollar is the ripple effect it can have in an international exchange rate scenario, even if it is caused by internal factors.

U.S. Currency and Currency Market

The US dollar is the base currency in the foreign exchange market, which is not only the main reserve currency in the world, but also serves as a standard unit for commodities such as gold and oil. Het belang van de Amerikaanse dollar op de wereldwijde forexmarkt zou kunnen worden afgemeten aan de creatie van de us-dollarindex in 1973 the door of the New York Chamber of Commerce met with the trouble of vard van de Americense currency te volgen ten opzichte van de valuta’s Mir. The dominance of the US dollar in the foreign exchange market may also be associated with “dollarization” where countries other than the United States view the US dollar as their official currency.

Global financing and exchange rates are important topics when considering business abroad. As part of the procedure, I will explain in detail what strong and weak currencies are. Then I will talk in detail about the reasons for currency fluctuations. Finally, I will explain the importance of a hard and soft currency for risk management.

Hard currency

Hard currency usually comes from a highly developed industrialized country, widely used around the world as a way to pay for goods and services. A strong currency should remain relatively stable for a short time and be very liquid in the foreign exchange market. Another criterion for a strong currency is that the currency should come from a politically and economically stable country. The US dollar and the British pound are good examples of hard currencies (Investopedia, 2008). A strong currency basically means that the currency is strong. Strong and weak, growth and fall, strengthening and weakening – relative terms in the currency world (sometimes called “forex”). Rise and fall, strengthening and weakening all point to a relative change in the situation compared to the previous level. When the dollar “gets stronger,” its value increases against one or more other currencies. For a strong dollar you can buy more units of foreign currency than before. Because of the stronger dollar, the prices of foreign goods and services for American consumers are falling. This allows Americans to go on a long-delayed vacation in another country or buy an too expensive foreign car. U.S. consumers benefit from a strong dollar, but U.S. exporters have suffered. A strong dollar means that more currency is needed to buy U.S. dollars. American goods and services are becoming more expensive for foreign consumers, so they are buying fewer American goods. Because more currency is needed to buy strong dollars, dollar-valued goods become more expensive when sold abroad (chicagofed, 2008).

Soft currency

A soft currency is another name for a “weak currency.” The value of a soft currency often fluctuates, and other countries do not want to keep these currencies because of the political or economic uncertainty in the country’s soft currency. The currencies of most developing countries are considered soft currencies.

Change the currency

There are many factors that can contribute to currency fluctuations. Here are some for both strong and weak currency:

Factors contributing to a strong currency
Higher interest rates in your country than abroad
Lower inflation
Domestic trade surplus compared to other countries
Large and persistent state deficit displaces domestic loans
Political or military unrest in other countries
Strong domestic financial market
Strong domestic economy/weaker foreign economy
There are no records of default on the national debt
Reasonable monetary policy aimed at price stability.
Factors contributing to a weak currency
Lower interest rates at home than abroad
Higher inflation
Domestic trade deficit compared to other countries
Permanent state surplus
Relative political/military stability in other countries
The collapse of the domestic financial market
Weak domestic economy / strong foreign economy
Frequent or recent defaults on the national debt
Monetary policy, often changing goals

Importance for risk management

When you move abroad, you have to consider many risk factors, and the ability to manage these factors is essential to business success. In general terms, economic risk can be described as a series of macroeconomic events that may hinder the expected return on investment. Some analysts further break down economic risk into financial factors (factors that lead to currency irreversibility, such as external debt or current account deficits, etc.) and economic factors (such as public finances, inflation and other economic factors, into higher and more sudden. taxes or desperate government imposed restrictions on the rights of foreign investors or creditors). Altagrup, 2008. Companies’ decisions to invest in another country can have a significant impact on their national economy.
Conclusion

Hard currency usually comes from a highly developed industrialized country, widely used worldwide as a means of paying for goods and services. A strong currency should remain relatively stable for a short time and be very liquid in the foreign exchange market. A soft currency is another name for a weak currency.

In the forex market, as in any financial market, there is its own set of trade agreements and related jargon. If you are new to currency trading, mechanics and terminology usually require some adjustments. But after waking up, most currency trading agreements are fairly simple.

Act at the same time

The biggest mental hurdle faced by newcomers to currency trading, especially traders accustomed to other markets, revolves around the undeniable fact that every currency exchange is a simultaneous purchase and sale. For example, in a stock trading game, if you buy 100 shares from Google, you have 100 shares and you want to see their price burn. If you want to leave this position, just sell what you bought before. Easy not?

Playing with currencies, buying one currency requires the sale of another currency at the same time. It could be currency exchange. Simply put, if you want the dollar to grow, now ask: “Higher against what?”

The solution is another currency. In relative terms, if the dollar strengthens against another currency, this other currency will fall against the dollar. To think about the available market conditions: after buying the stock you sell for cash, when you sell the stock, you buy for cash …

Currencies come from pairs

To simplify the task, forex markets belong to forex pairs, each of which combines different currencies that are traded or “traded” against each other.

In addition, in the Forex markets, most currency pairs are given aliases or acronyms that refer to the pair, not necessarily all the currencies involved.

Major currency pairs

All major currency pairs are pegged to the US dollar, on the one hand, in the transaction. The denominations of major currencies are expressed using the codes of the International Organization for Standardization (ISO) for each currency.

Major cross-currency pairs

While most forex thrives within dollar pairs, cross-currency pairs act as an alternative choice – always trading the US dollar. Currency pair, or for short, cross or cross – is a currency pair that does not add the U.S. dollar. Cross-courses are based on the respective pairs of US dollars, but are listed independently.

Crossovers allow traders to target trades more accurately on specific individual currencies to keep track of news or event sales.

For example, your analysis may indicate that the Japanese yen has the worst prospects of all major currencies, based on interest rates or even economic prospects. To take advantage of this, you want to sell JPY, but against what other currency? You’re targeting the US dollar, you might be buying USD/JPY (buy USD/sell JPY); however, you conclude that the outlook for the US dollar will not be better than for JPY. Further research on your part may indicate another currency with better prospects (e.g. high or rising interest rates or signs of economic recovery), the Australian dollar (AUD). In this example, you could think of buying a cross AUD/JPY (buy AUD/sell JPY) to express your opinion that AUD offers the best forecast for major currencies, while JPY offers the worst.

In fact, the most actively traded crosses point to three major currencies other than the US dollar (namely, the euro, the Japanese yen and the pound sterling), and are also known as crosses with the euro, crosses with the yen and crosses with the British pound.

Along with supply shortages

Forex markets use the same terms to express their market positioning as many other financial markets. But since forex trading involves simultaneous buying and selling, it is useful to clearly understand the conditions, especially if you are new to the financial market.

Go long

No, we’re not talking about throwing ourselves into a football pass. A long position or just a long position refers to a market position in which you have such an effect. In FX, this means that you have such a currency pair. If you are tall, you are looking for higher prices to sell at a higher price than what you bought.

Be short

This short position or just a shorter position refers to a position in an industry in which you have sold a security that you never had. In the securities market, selling a short position requires borrowing shares (and paying commissions for brokerage services) to help you sell them. In Forex markets this means that you have sold a currency pair, which means that you have sold the currency of the camp and bought the counter currency. Thus, you always trade, only in reverse order, as described in the terms of the quote of the currency pair. If you have sold a currency pair, it is called short or short. This also means that the price of the pair should fall to help you redeem it with a profit. Selling at different prices helps to reduce and shorten you.

When you trade forex, short shorts are as fashionable as long shorts.

“Sell expensive and buy cheap” is a standard forex strategy.

Currency pairs reflect the relative values of the two currencies and never reflect the absolute value of a single share or product. As currencies can fall or rise relative to each other, with medium- and long-term trends and minute-by-minute fluctuations, the value of currency pairs declines as often as at any time. To see the benefits of these steps, forex traders regularly use short positions to take advantage of falling currency prices. Traders in other markets may feel uncomfortable with short sales, but this is just something you need to understand.

Squares

The absence of a position outside it is called a square or flat. If you have an empty position and want to close it, it’s called square building. If you’re small, you’re going to have to buy a square. If you are tall, you need to smooth the target. The only real moment when you are not exposed to market or financial risk is when you are right.

Understanding how exchange rates work is important for businesses, investors, currency traders and, of course, holidaymakers. But what makes exchange rates rise and fall? FX 101 breaks the world of currency exchange from simple to complex.

Here are 10 factors that affect the exchange rate:

1. Supply and demand

Currencies can be bought and sold, such as stocks, bonds or other investments. And like these other investments – and almost anything you can buy or sell – supply and demand affect the price. Supply and demand are one of the most fundamental economic principles, but it can still serve as a good starting point for understanding why exchange rates fluctuate.

Political stability

Currency is issued by governments. For a currency to retain its value (or even exist), the state before it must be strong. Countries with uncertain futures (due to revolutions, wars or other factors) tend to have much weaker currencies. Currency traders do not want to risk losing their investments and will therefore invest elsewhere. With a small demand for currency, the price falls.

Economic power

Economic uncertainty is as important as political instability. A currency supported by a stable government is unlikely to be strong when the economy is in the toilet. To make matters worse, a lagging economy can be difficult to attract investors, and without investment the economy will suffer even more. Currency traders know this and will avoid buying a currency supported by a weak economy. Again, this reduces demand and cost.

A strong economy usually leads to a strong currency and a weak economy leads to depreciation. That is why currency traders are so closely watching GDP, employment and other economic indicators.

4. Inflation

Low inflation increases the value of the currency, while high inflation usually lowers the value of the currency. If today a chocolate bar costs 2 dollars, but inflation is 2%, the same chocolate bar costs 2.02 dollars a year – it’s inflation. Part of the inflation is good, which means that the economy is growing, but high inflation is usually the result of an increase in the supply of the currency without equal growth in the real value of human assets.

Interest rate

When the Bank of Canada (or any other central bank) raises interest rates, it essentially offers lenders (such as banks) a better return on their investment. High interest rates are attractive to foreign exchange investors because they can receive interest for the currency they bought. Therefore, when the central bank raises interest rates, investors rush to buy their currency, which increases its value and, in turn, stimulates the economy.

But remember that there are no factors influencing currency exchange. Often the country offers very high interest rates, but the value of this currency will continue to decline. Indeed, despite the incentive to take advantage of high interest rates, traders may be wary of economic and political risks or other factors – and therefore refuse to invest.

6. Trade balance

The country’s trade balance (i.e., how much a country imports compared to what that country exports) is an important factor in exchange rates. Simply put, the trade balance is the cost of imports minus the value of exports.

When a country has a trade deficit, the cost of its imports exceeds the value of its exports. When the value of exports exceeds the value of imports, there is a trade surplus.

When a country has a trade deficit, it must acquire more foreign exchange than it receives through trade. For example, if Canada had a trade deficit of $100 compared to the United States, it would have to purchase $100 in United States currency to pay for additional goods. Moreover, a country with a trade deficit would also provide other countries with too much of their own currency. The United States now has an additional $100 that it doesn’t need.

Basic supply and demand dictate that the trade deficit will lead to lower exchange rates, and a trade surplus will lead to a stronger exchange rate. If Canada had a trade deficit of $100 against the United States, Canada’s demand for U.S. dollars would be high, but the United States would also have an additional 100 Canadian dollars, so their demand for Canadian dollars would be low because of oversupply.

7. Debts

Debt, especially public debt (i.e. government debt), can also have a significant impact on interest rates. Indeed, large debt often leads to inflation. The reason is simple: when governments have excessive debt, they have a special luxury that we don’t have – they can just print more money.

If the U.S. owes Canada $100, the U.S. government could just run for a coin, turn on the printing presses, and print a new $100 bill. What’s the problem? Well, $100 isn’t big money for the government, no more than $1 million, it’s motivated by $1 billion, but Canada’s public debt exceeds $1 trillion, while the Debt of the United States far exceeds $15 trillion (and grows by $2.34 billion a day). If the country tries to pay its bills by printing money, it will face huge inflation and eventually devalue its currency.

Investors will also be concerned that the country is simply not fulfilling its obligations or, in other words, is unable or unwilling to pay its bills. This is a dangerous situation in which Greece and the euro area are currently located.

8. Quantitative easing

The quantitative easing – usually abbreviated to zE – is not easy, but it’s not really that hard. The simplest explanation is that central banks will try to revitalize the economy by giving banks more liquidity (i.e. liquidity) in the hope that they will then lend or invest that money and thus stimulate the economy. To provide this large liquidity, central banks will buy assets from these banks (usually government bonds).

But where do central banks take this extra money? The short answer is they’re creating it. Creating more money (increasing supply) will devalue them, but it will also lead to economic growth – according to the theory.

What is the point of quantitative easing? Central banks will only use quantitative easing during periods of weak growth if they have already exhausted other options (e.g. interest rate cuts).

Wikipedia defines money as “an exchange, a unit of calculation, and a means of saving.”

Money is just one form of money that falls into the first category of this definition. Money is also the smallest part of what economists define as “money supply.” The money supply consists of various components such as credit, deposits and others.

Since almost all electronic currencies are used as units of value in the exchange of goods and services, almost all of them are called money and currency. In addition, I believe that visa ™ dollar units ™ are also currencies, although companies don’t want you to treat them that way (for some this opinion may be controversial). In fact, credit card accounts are today the most widely used electronic money. I will continue and say that the difference between money and electronic money is almost zero in today’s electronic world.

The most interesting difference is between currencies issued by the state (let’s call them “public”) and currencies issued by private companies (let’s call them “private”).

With the advent and widespread PayPal private (electronic) currencies suddenly became a hot topic. PayPal was one of the first private currencies not tied to either the government or the credit card company. But private currencies are certainly not news. The original currencies that existed in the United States were in fact “banknotes” issued by American banks. They served a very important purpose in the early days of this country because they were valuable regardless of whether the United States continued to exist as an independent country. (Go to the spare parts store and check out some of these interesting documents.)

Original U.S. banknotes were usually provided with precious metal – in fact, it was often gold or silver certificates, which could be exchanged for bullion in the bank if desired. A bank account is a gold reserve to which you have received certificates.

In this context we need to look at private electronic currencies in circulation today.

All currencies are provided with something that confirms their value. Gold-backed currencies are the easiest to understand. Units of the value of such a currency are tied to the amount of gold that is in the “safe” reserve. You can still buy gold certificates, but not from many governments. They are usually issued by gold companies, which issue a certificate confirming ownership of gold in their vaults (“paper gold”). Make it a bearer certificate, and it will be more or less paper money secured with gold.

The second easiest to understand is a currency secured by currency (e.g. PayPal). For example, some small countries issue their own currency at a fixed rate against the U.S. dollar, which they keep in their own reserve. These are state currencies secured by the dollar. There is no shortage of private currencies secured by the dollar – one of the first was a tourist voucher. Sellers accept these pieces of paper because there is a well-funded and trustworthy company that accepts these pieces of paper in exchange for U.S. dollars. Visa, MasterCard and others also accept their currency along with U.S. dollars (and other currencies). Their units are valuable because traders believe that they will (usually) receive the state currency in exchange for units stored electronically in their accounts. But in fact, sellers value credit card units much less than the currencies on their accounts. Reasons – refundable payments and commissions (as well as troubles). However, merchants are not allowed to charge consumers more because of their agreements with these credit card companies. As a result, even cash buyers pay more for the goods and services of these sellers (and why you should always ask for a 2-3% discount when paying in cash).

The conundrum is why state currencies that are not endowed with any values have value. These currencies are often referred to as “paper” because people take them for face value based on trust in the issuer government. But that’s only part of the story. In fact, the value of these currencies depends on many factors.

To understand why, look at the global bond market. The U.S. government borrows billions and billions of dollars annually from foreign investors and governments. It must do so to finance its budget deficit, which of course includes interest on the debt and repayment of the principal amount of the debt. The U.S. government benefits from a very low interest rate on its debt. The reason for this is the world’s great confidence that the United States will pay this debt in a very reliable and predictable manner. Why does the world trust the U.S. government so much? Because of his ability to collect taxes from his citizens!

If the U.S. government suddenly cancels all its taxes, the value of the dollar will fall as investors lose faith in the U.S. government’s dollar debt. If the U.S. government suddenly raises taxes, for example, by 10,000%, the dollar will also fall, as the investment world realizes that people no longer have the incentive to work to make money, and therefore the wealth of the government may increase. tax money. will go to the toilet. If unemployment rises sharply or corporate income falls, or both, the US dollar will also lose its value.

On the other hand, if the U.S. government drastically reduced useless and unproductive spending, the dollar would rise in value, as investors around the world would see that the U.S. government would be even better able to repay its debts. (A rise in dollar value means lower interest rates on government bonds, resulting in a lower need for tax collection, leading to a higher dollar.) Basically it is your potential income and the potential of your children that determines the size of the dollar value. The value of the U.S. dollar is in all respects based on taxes.

You don’t hear this analysis directly, but indirectly in the media. It is a frightening reality that the U.S. government has full control over the value of your savings and has the right to actually rob you (taking value without your consent). It’s also a pretty negative way of describing things, even if they’re true.