The exchange rate is the rate (that is, the price) of one currency in relation to another.
Examples.
1 euro = 1.3345 US dollars on such a date and in such a place. 1 US dollar = 110.95 yen on such a date and in such a place.
(EUR = EURO, USD = US Dollar, JPY = yen according to the international currency codification, Standard (Standard, from Latin norma ("square, rule") means unit. ) ISO 4217, which distinguishes each currency by a three-letter abbreviation, the full list of which is given here).
Types of exchange rates (the exchange rate is the rate (that is, the price) of one currency relative to another.) (and currency markets)
or fixed, that is, determined by the state issuing the currency in relation to the base currency (usually the US dollar or euro). Then the rate can be changed only by making a decision on the devaluation (or revaluation) of this state, although a parallel market often arises in the country (the country comes from the Latin pagus, which denoted the territorial and tribal division of the extent. ) or abroad, if this official rate is unrealistic, or floating and determined on each transaction by the foreign exchange market. This is a global interbank foreign exchange market, increasingly less centralized in certain places of quotations and exchange, since it is based on computer connections between banks.
the "spot" rate, that is, "spot", for immediate purchases and sales of currency, or the "forward" rate, that is, "futures", for operations with foreign currency in the future.
Factors affecting exchange rates.
The motto is, first of all (everything understood as the totality of what exists, is often interpreted as the world or.), the requirement "by sight (sight is the meaning that allows you to observe and analyze the environment with the help of I.)" in relation to the country that issued it.. Thus, its relative value in comparison with the other will be equal to an instant (the moment refers to the smallest constituent element of time. Not now.), that is, the ratio of the loan granted to one country to the one that would be granted to another country.
Traders-Traders express the unit of the exchange rate quote for a pair of currencies in points called pips. Pip is an English abbreviation for "price point of interest (chart)" or "exchange point" in French. Initially, as the name suggests, this stood for the "deportation" or "postponement" unit of the futures exchange, but was eventually applied to the spot market unit. It denotes the last decimal number used :
in the case of the euro, this is the fourth decimal. Thus, the three-point quote, which is the standard in the euro/dollar interbank market, will be in the first example (1 euro = 1.2345 US dollars) from point 1 above: 1 euro = 1.2343/1.2346 US dollars. in the case of the yen, this will be the second decimal number, and then the quote for every four "points" it will still be, for the example above, 1 US dollar = 110.93/110.97 yen.
Thus, a "point" represents a percentage (percentage is a way of expressing a fraction or a fraction in a set. One. ) differs and is not fixed for each parity. This deviation depends on:
from the currency in which the exchange rate is chosen by agreement ("indefinite" for comparison), the other is taken as a unit of goods (goods are a product of human activity, direct or indirect, in essence.).) ("definite"). numbers (the concept of numbers in linguistics is discussed in the article " number. ) decimal places in the quotation.
In the long run.
In the long run, imbalances - and, much less often, balances - in the valuation of currencies are measured by purchasing power parity or PPP (in English: purchasing power parity, which gives a very mnemonic reduction in PPP). This is a statistical exercise (statistics are, firstly, a number calculated from a sample. ) necessarily opaque and complex, which involves comparing the purchasing power of one typical consumer in one country and a certain range of consumer goods with the purchasing power of another typical consumer in another country and for a range of consumer goods that are necessarily completely different because they meet the requirements for the purchasing power of one typical consumer in another country. other local habits of matter (matter is the substance that makes up any body that has a tangible reality. its. ) lifestyle (Life is the name:) and cost structures. In practice, the US dollar is usually used as the currency of the general index, and therefore each time we will compare the purchasing power of a consumer of the type of country X and the purchasing power of a consumer of the type of the USA.
Thus, purchasing power parity allows you to accumulate errors in the calculations of the price index, knowing that their establishment at the national level is not perfect or stable over time (time is a concept developed by a person to understand this.). If it is particularly useful and suitable for international comparisons of the standard of living (the standard of living refers to the quality and quantity of goods and services available to the company. ), where the margin of error of a few percent is insignificant, its use for the analysis of the foreign exchange market should be carried out with maximum caution.
Thus, out of a sense of humor, the British weekly The Economist in September 1986 created its Big Mac Index, a PPA indicator that simply compared the prices of McDonald's Big Mac in different currencies. This index, although unreliable, given the differences in marketing positions (marketing (is also sometimes used-in 7% of cases, based on the figures given by. ) and McDonald's local cost structures - have been very successful and continue to be published and observed, which ultimately is not a sign of confidence in the various available PPA calculations.
In the short term.
Exchange rates vary greatly over the course of one day, these changes cannot be explained by theory (the word "theory" comes from the Greek word theorein, which means "to contemplate, to observe. ) from the previously described PP.
As part of this short-term analysis, it is necessary to turn to other explanations.
These daily changes are based on the concept of the expected return on foreign currency deposits . Economic agents will determine their demand for various currencies based on the profitability they expect from deposits in these currencies.
Imagine an agent living in the eurozone, he wonders whether it is more profitable to keep deposits in euros or deposits in dollars.
His deposits in euros will bring him the expected interest rate i d (interest rates on deposits in the eurozone). Thus, the expected profitability of these deposits is :
On the other hand, if he intends to hold his dollar deposits, they will return him the interest rate if (the interest rate on deposits in the USA), that is, this time the interest rate in the USA. The difference is that since our agent is a European, he will want to return them back to euros, so it is necessary to convert them back to this currency. Therefore, he must also take into account the change in the exchange rate between currencies during the period of his deposit. So this time it will have the expected profitability.
with E T+1 the expected value of the euro against the dollar when he withdrew his deposit.
this is the known value of the euro against the dollar when making a deposit.
thus (E T+1 - E t) / E t is the expected change in the euro exchange rate for this period.
Thus, our agent will be the arbiter between these two incomes. An American agent would do the same thing, but vice versa (in mathematics, the opposite is true for element x of a set having a law. ) .
This arbitration performed by a set (In set theory, a set intuitively denotes a set. ) agents and within the framework of road traffic (road traffic (Anglicism: road traffic) is the movement of motor vehicles. ) perfect and free of capital, leads us to equalize these two profitability (due to the choice of ownership of different currencies).
This alignment includes an equation (in mathematics, an equation is an equality that usually connects different quantities. ) the following, called the interest rate parity condition (PTI) :
However, there will be a rebalancing towards the situation (in geography, a situation is a Spatial concept that allows you to determine the relative location of one. ), in which we will have :
These profitability depend, as we have just seen, primarily on the expected interest rates and the expected value of the exchange rate. But, basically, the latter depends on the data (in information technology (IT), data is often an elementary description. ) the following :
expected inflation refers to changes in trade barriers related to changes in demand for relative goods, relative expected growth.
All these values are considered relative because they should be taken into account each time in relation to a different economy. More clearly, if the expected inflation is 2% in the US and the eurozone, the relative expected inflation is zero, so no effect. In the case of the United States, we may wonder if their public deficit policy is actually a form of monetary policy. This policy today serves their interests, allowing them to gain a competitive advantage over other developed countries by reducing the exchange rate of their currency (developed countries with market economies (PDEM) are countries, among others.).
The economic role of exchange rates.
Exchange rates (and interest rates that are closely related to them), of course, affect import and export prices, as well as the meaning (meaning (strategies for engineering minor aging) is a scientific project whose goal is. ) flows (the word flow (from Latin fluxus, flow) usually denotes a set of elements. ) of capital between economic zones.
Because of this, countries and economic zones may be tempted to manipulate exchange rates, often under the pretext of preventing speculation (in fact, these manipulations rather encourage it) in order to influence exchange rates:
the competitiveness of their products and services makes them attractive for capital inflows.
A special case of the euro / dollar exchange rate.
The so-called euro/dollar exchange rate is the euro exchange rate expressed in US dollars, hence the share indicator.
It is the most active and most processed financial instrument in the world (the word "world" can mean :). Thus, its value is an indicator that is constantly monitored not only by economic and financial circles, but also by the mass media (the mass media are called impersonal means of disseminating information (such as the press, radio, etc.), both specialized and universal, from all over the world.
This definition (definition is a speech that says what a thing is or what a noun means. Therefore. ) is actually the external value of the euro against the US dollar. The exchange rate is the opposite of this share.
Profession (trader)
Those who are engaged in exchange operations in a professional capacity are called traders-traders. In particular, banks have teams of traders-traders both to carry out their own operations of these institutions in the market, and to meet the needs of their clients in currency exchange, for example, in relation to companies, for their international trading operations. They act as market makers, that is, they "make prices" for the amount (quantity is a general term in metrology (invoice, amount); scalar. ) either standard or specified, and provide both the one where they buy (bid, in English) and the one they sell (ask, in English).
Unit of measurement used in the USA: = = Unit of measurement used (Pip )==
Traders-Traders express the unit of the exchange rate quote for a pair of currencies in points called pips. Pip is an English abbreviation for "price point of interest" or "exchange point" in French. Initially, as the name suggests, this stood for the "deportation" or "postponement" unit of the futures exchange, but was eventually applied to the spot market unit. It denotes the last decimal number used :
in the case of the euro, this is the fourth decimal. Thus, the three-point quote, which is the standard in the euro/dollar interbank market, will be in the first example (1 euro = 1.2345 US dollars) from point 1 above: 1 euro = 1.2343/1.2346 US dollars. in the case of the yen, this will be the second decimal number, and then the quote for every four "points" it will be, again, for the example above, 1 US dollar = 110.93/110.97 yen.
Thus, a "point" represents a different, non-fixed percentage for each parity. This deviation depends on :
the currency in which the exchange rate is chosen by agreement ("indefinite" in comparison), and another currency is taken as a unit of goods ("definite"). the number of decimal places in the quotation.
These discrepancies between the prices of "buyer (buyer is a profession that consists in managing purchases in one company)" and "seller" of one currency in relation to another are significantly lower than those that an individual can detect when he wants to make a currency exchange at an exchange office (or at an exchange office). to his bank) for a modest amount.
In the first example, when the coefficient (minimum amount) of a Forex currency transaction is 100,000 euros (a standard transaction is rather estimated in tens of millions), it should be noted that one point for such a traded amount costs $ 10. In the second example, when the cost of a currency transaction is 100,000 US dollars, one pip for this amount costs 1,000 yen (or about 9 US dollars).
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