Showing posts with label currency. Show all posts
Showing posts with label currency. Show all posts

Monday, August 11, 2008

Foreign Exchange in a Historical Perspective | ForexGen Tips





Currency trading has a long history and can be traced back to theancient Middle East and Middle Ages when foreign exchange startedto take shape after the international merchant bankers devised billsof exchange, which were transferable third-party payments thatallowed flexibility and growth in foreign exchange dealings.The modern foreign exchange market characterized by theconsequent periods of increased volatility and relative stability formeditself in the twentieth century. By the mid-1930s London became tobe the leading center for foreign exchange and the British poundserved as the currency to trade and to keep as areserve currency.Because in the old times foreign exchange was traded on the telexmachines, or cable, the pound has generally the nickname “cable”. In1930, the Bank for International Settlements was established inBasel, Switzerland, to oversee the financial efforts of the newlyindependent countries, emerged afterthe World War I, and to provide monetary relief to countriesexperiencing temporary balance of payments difficulties.After the World War II, where the British economy was destroyedand the United States was the only country unscarred by war, U.S.dollar became the prominent currency of the entire globe. Nowadays,currencies all over the world are generally quoted against the U.S.dollar.

Spot Market | ForexGen Tips




Currency spot trading is the most popular foreign currencyinstrument around the world, making up 37 percent of the total activity The fast-paced spot market is not for the fainthearted, as it featureshigh volatility and quick profits (and losses). A spot deal consists of abilateral contract whereby a party delivers a specified amount of agiven currency against receipt of a specified amount of anothercurrency from a counterparty, based on an agreed exchange rate,within two business days of the deal date. The exception is theCanadian dollar, in which the spot delivery is executed next businessday.Trading 24The name "spot" does not mean that the currency exchange occursthe same business day the deal is executed. Currency transactions that require same-day delivery are called cash transactions. The twodayspot delivery for currencies was developed long before technological breakthroughs in information processing.This time period was necessary to check out all transactions' detailsamong counterparties. Although technologically feasible, thecontemporary markets did not find it necessary to reduce the time tomake payments.

The Carry Trade | ForexGen Tips






A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates - which can often be substantial, depending on the amount of leverage the investor chooses to use. Here’s an example of a “yen carry trade”: let’s say a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let’s assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% (4.5% - 0%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration.