Foreign Exchange

Exchange Rates Currency band Exchange rate Exchange rate regime Fixed exchange rate Floating exchange rate Linked exchange rate In finance, the exchange rate between two currencies specifies how much one currency is worth in terms of the other. ... Image created by cyun File links The following pages link to this file: Foreign exchange market Categories: Images with unknown copyright status ... The currency band is a system of exchange rates by which a floating currency is backed by hard money. ... The exchange rate regime is the way a country manages its currency in respect to foreign currencies and the foreign exchange market. ... A fixed exchange rate, sometimes (less commonly) called a pegged exchange rate, is a type of exchange rate regime wherein a currencys value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold. ... A linked exchange rate system is a type of exchange rate regime to link the exchange rate of a currency to another. ...

Markets Foreign exchange market Futures exchange The foreign exchange (currency or forex) market exists wherever one currency is traded for another. ... A futures exchange, or futures and options exchange is a corporation or mutual organization which provides the facilities to trade futures contracts and options. ...

Products Currency Currency future Forex swap Currency swap Foreign exchange option A currency future, also FX future or foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the last trading date. ... A Forex swap is an over the counter short term interest rate derivative instrument. ... A currency swap is a foreign exchange agreement between two parties to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped. ... In finance, a foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. ...

A floating exchange rate or a flexible exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency. The opposite of a floating exchange rate is a fixed exchange rate. The exchange rate regime is the way a country manages its currency in respect to foreign currencies and the foreign exchange market. ... The foreign exchange (currency or forex) market exists wherever one currency is traded for another. ... A floating currency is a currency that uses a floating exchange rate as its exchange rate regime. ... A fixed exchange rate, sometimes (less commonly) called a pegged exchange rate, is a type of exchange rate regime wherein a currencys value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold. ...

Economists generally think that, in most circumstances, floating exchange rates are preferable to fixed exchange rates because floating rates are responsive to the foreign exchange market. This allows the dampening of shocks and foreign business cycles. However, in certain situations, fixed exchange rates may be preferable for their greater stability and certainty. An economist is an individual who studies, develops, and applies theories and concepts from economics, and writes about economic policy. ... The foreign exchange (currency or forex) market exists wherever one currency is traded for another. ... In economics a shock is an unexpected or unpredictable event that affects an economy. ... An abstract business cycle The business cycle or economic cycle refers to the ups and downs seen somewhat simultaneously in most parts of an economy. ...

There is no currency in the world whose value is absolutely and entirely determined by the foreign exchange market; in cases of extreme appreciation or depreciation, a central bank will normally intervene to stabilize the currency. Thus, the exchange rate regimes of floating currencies may more technically be known as a managed float. A central bank might, for instance, allow a currency price to float freely between an upper and lower bound, a price "ceiling" and "floor". Management by the central bank may take the form of buying or selling large lots in order to provide price support or resistance, or, in the case of some national currencies, there may be legal penalties for trading outside these bounds.

Literature

• Tiwari, Rajnish (2003): Post-Crisis Exchange Rate Regimes in Southeast Asia, Seminar Paper, University of Hamburg. (PDF)

External links

• Foreign Market Watch Analysis and Commentary on the major currency pairs
• Currency Trading Basics, from OANDA's FXTrade site