Usually refers to the various payment methods that can be used for international settlement expressed in foreign currencies. Including: foreign currency, foreign currency deposits, foreign currency securities (government bonds, treasury bills, corporate bonds, stocks, etc.), foreign currency payment vouchers (bills, bank deposit certificates, postal savings certificates, etc.). Foreign exchange is the abbreviation for international exchange.
The main varieties of foreign exchange
Hard currency: refers to a currency that is strong and freely convertible in the international financial market, has a stable currency value, and can be used as an international means of payment or circulation. Mainly include: U.S. dollar, British pound, Japanese yen, euro, etc.
Soft currency: refers to the currencies of countries with weak exchange rates in the international financial market that cannot be freely exchanged for other countries’ currencies and have low creditworthiness, mainly Indian rupee, Vietnamese dong, etc.
Hard currency and soft currency are relative terms, and they will change with changes in a country’s economic and financial conditions. For example, the U.S. dollar was a hard currency in the 1950s and a soft currency in the late 1960s and 1970s. Since the 1980s, the U.S. has implemented a high interest rate policy and tightened monetary policy, and the U.S. dollar has become a hard currency again.
At present, the main foreign exchange products with relatively large trading volume in the foreign exchange market: US dollars, euros, Japanese yen, British pounds, Hong Kong dollars, etc., these foreign exchange varieties are the foreign exchanges with frequent transactions and large transactions in the foreign exchange market; at the same time, they are also It can be regarded as a barometer in the foreign exchange market, and their violent and frequent changes often lead to drastic changes in the entire foreign exchange market.
Exchange rate refers to the exchange price between two different currencies. If foreign exchange is also regarded as a commodity, then the exchange rate is the price at which one currency is used to purchase another currency in the foreign exchange market. For example, l U.S. dollar = 110 yen, which means that 1 U.S. dollar can be exchanged for 110 yen. There are direct pricing methods and indirect pricing methods for expressing exchange rates.
Direct price method and indirect price method
The direct pricing method is also called the price pricing method. It is a method of expressing the exchange rate of a certain unit of foreign currency in the domestic currency. Generally, it is how much domestic currency can be converted into 1 unit or 100 units of foreign currency. The more valuable the domestic currency is, the less domestic currency can be exchanged for a unit of foreign currency, and the smaller the exchange rate value. Conversely, the less valuable the domestic currency is, the more domestic currency can be exchanged for a unit of foreign currency, and the greater the exchange rate value. Under the direct pricing method, the rise and fall of the foreign exchange rate is inversely proportional to the change in the value of the domestic currency: the domestic currency appreciates, the exchange rate declines; the domestic currency depreciates, the exchange rate rises. Most countries have adopted the direct pricing method. Most exchange rates in the market are also exchange rates under the direct pricing method. Such as: US dollar against Japanese yen, US dollar against Hong Kong dollar, US dollar against RMB, etc.
The indirect pricing method is also called the quantity pricing method. It is a method of expressing the exchange rate of a certain unit of domestic currency in a foreign currency. Generally, it is how much foreign currency can be converted into 1 unit or 100 units of domestic currency. The more valuable the domestic currency is, the more foreign currencies can be exchanged per unit of domestic currency, and the greater the exchange rate value; conversely, the less valuable the domestic currency, the less foreign currency can be exchanged per unit of domestic currency, and the smaller the exchange rate value. Under the direct pricing method, the rise and fall of the foreign exchange rate is proportional to the change in the value of the domestic currency: the domestic currency appreciates, the exchange rate rises; the local currency depreciates, the exchange rate declines. The former Commonwealth countries mostly used indirect pricing methods, such as the United Kingdom, Australia, and New Zealand. The exchange rates that adopt the indirect pricing method in the market mainly include the British pound against the US dollar and the Australian dollar against the US dollar.
Basic exchange rate and cross exchange rate
Basic exchange rate (also called direct or basic exchange rate): Generally refers to the ratio of a country’s currency to the U.S. dollar.
Cross exchange rate: In the international market, almost all currencies have an exchange rate against the US dollar. The exchange rate between a non-US dollar currency and another non-US dollar currency often needs to be calculated through these two exchange rates against the US dollar. The exchange rate calculated by this set is called a cross exchange rate. A distinctive feature of cross exchange rates is that an exchange rate involves the exchange rate between two non-US dollar currencies.
Bid and ask price
Bid rate is the exchange rate used when the bank buys foreign exchange (the currency listed on the left of the “/” in the price, that is, the base currency) from the customer.
The offer rate refers to the exchange rate used when the bank sells foreign exchange (the currency listed on the left of the “/” in the price, that is, the base currency).
The central foreign exchange rate is the average of the buying rate and the selling rate.
Calculate foreign exchange cross quotes
Answer: There are mainly the following methods to calculate the cross exchange rate:
(1) Same as direct quote currency
Buying price Selling price
USD/JPY: 120.00 120.10
(Cross division) Buying price Selling price
DEM/JPY = 66.33 66.43
USD/DEM: 1.8080 1.8090
(2) Same as indirect quote currency
Buying price Selling price
(Cross division) Buying price Selling price
EUR/GBP = 0.6873 0.6883
(3) Direct quote currency and indirect quote currency
Buying price Selling price
USD/JPY: 120.10 120.20
(Multiply in the same direction) Buying price Selling price
EUR/JPY = 132.17 132.40
EUR/USD: 1.1005 1.1015
Fixed exchange rate
A fixed exchange rate refers to an exchange rate at which the exchange rate of one country’s currency to another country’s currency is basically fixed. During the gold standard period from the early 19th century to the 1930s, the international monetary system centered on the US dollar after World War II and the early 1970s all implemented a fixed exchange rate system. A fixed exchange rate does not mean that the exchange rate is completely fixed, but fluctuates around a relatively fixed upper and lower parity range. For example, in the fixed exchange rate system centered on the US dollar after World War II, the official exchange rate of the currencies of the member countries of the International Monetary Fund against the US dollar is the parity, and the currency exchange rates of the member countries can only fluctuate 1% above and below the parity, and the central bank intervenes.
Floating exchange rate
Floating exchange rate means that the exchange rate of a country’s currency to another country’s currency has no upper and lower limits and is determined by the supply and demand relationship in the foreign exchange market. On August 15, 1971, the United States implemented the New Economic Policy, allowing the US dollar exchange rate to float freely. By 1973, various countries generally implemented a floating exchange rate system. It was also from that time that the foreign exchange market continued to develop with the continuous fluctuation of various exchange rates.
Floating exchange rate type
Floating exchange rates are divided into “free floating exchange rates” and “managed floating exchange rates” according to whether the government intervenes. In real life, the government does not take any intervention measures in the exchange rate of its own currency, and there are few countries that fully adopt a free floating exchange rate. Because the exchange rate has a significant impact on the country’s international balance of payments and economic equilibrium, governments in various countries mostly control the direction of the exchange rate by adjusting interest rates, buying and selling foreign exchange in the foreign exchange market, and controlling capital movements.
Foreign exchange market
The foreign exchange market refers to a trading market in which banks and other financial institutions, proprietary dealers, and large multinational corporations participate, and are connected through intermediaries or telecommunication systems, with various currencies as the trading objects. It can be tangible-such as foreign exchange exchanges, or intangible-such as inter-bank foreign exchange transactions through telecommunication systems. According to the latest statistics of the Bank for International Settlements, the average daily transaction volume in the international foreign exchange market is approximately US$1.5 trillion.
Features of the foreign exchange market
From the perspective of the regional scope of foreign exchange transactions and the surrounding speed, the foreign exchange market has two basic characteristics: spatial unity and time continuity.
The so-called spatial unity refers to the fact that the foreign exchange markets of all countries use modern communication technology (telephone, telegraph, telex, etc.) for foreign exchange transactions, which makes the connection between them very close, and the whole world is becoming more and more integrated, forming one A unified world foreign exchange market.
The so-called time continuity means that the various foreign exchange markets in the world alternate with each other in business hours, forming a pattern of successive circular operations.
The main difference between the foreign exchange market and the stock market
- Different spaces It can be seen from the characteristics of the foreign exchange market that the foreign exchange market is a global market, while the stock market is a regional market; the foreign exchange market is invisible, while the stock market is tangible. Some friends often ask: Is this quotation a quotation in which market? This is affected by the stock market. Since the foreign exchange market is a global open market, there is no question of which market quotation is. The price we see is the latest quotation in this market. Although the Tokyo market may be more active at this time, there may also be New York. , London, Hong Kong and other regions are trading, so it is difficult to determine which market the quote comes from, and there is no need to know.
- Different standards
In the stock market, different regional markets will have different market rules and their own characteristics, but in the same market, everyone follows a unified standard.
In the foreign exchange market, due to the characteristics of its globalization, the degree of tolerance and freedom of the market is quite high. Everyone is trading together, and it is enough to follow the principles of fairness, voluntariness, and honesty. There are no special requirements and rules.
- Different transaction methods
The standardized stock market uses call auctions and centralized matching methods to complete transactions, which reflects absolute fairness. Therefore, it is impossible for the same stock at the same point in time to have different transaction prices.
All buyers and sellers in the foreign exchange market are completely open, reflecting absolute freedom. Buyers can freely ask for prices and sellers can freely quote prices. Both parties conduct transactions on a voluntary basis. There is no collective bidding and bidding in the foreign exchange market. The rules of centralized matchmaking by computers.
Major participants in the foreign exchange market
Answer: Participants in the foreign exchange market mainly include central banks, commercial banks, non-bank financial institutions, broker companies, self-employed businesses, and large multinational companies in various countries. They have frequent transactions and huge transaction amounts, each of which is in the millions of dollars or even more than tens of millions of dollars. Participants in foreign exchange transactions can be divided into investors and speculators according to their trading purposes.
The emergence of the foreign exchange market
Answer: In the contemporary world economy, no country can leave the international economic and trade exchanges. With the international flow of commodities, labor services, and capital, various currency movements that cross national borders for payment are inevitable. International economic exchanges form the supply and demand of foreign exchange, and the supply and demand of foreign exchange lead to foreign exchange transactions, and the place where foreign exchange transactions are conducted is called the foreign exchange market. With the continuous strengthening of the globalization trend of the world economy, the international foreign exchange market has become increasingly closely linked.
The world’s major foreign exchange markets
Answer: At present, there are about 30 major foreign exchange markets in the world, which are located in different countries and regions on all continents of the world. According to the traditional geographical division, it can be divided into three parts: Asia, Europe, and North America. Among them, the most important ones are London, Frankfurt, Zurich and Paris in Europe, New York and Los Angeles in America, Sydney in Australia, Tokyo and Asia in Asia. Singapore and Hong Kong etc.
Each market has its own fixed and unique characteristics, but all markets have commonalities. Each market is separated by distance and time, and they are sensitive to each other and independent of each other. After one center is open every day, it passes orders to other centers, sometimes setting the tone for the opening of the next market. These foreign exchange markets are centered on the city where they are located, and radiate other surrounding countries and regions. Due to the different time zones, the foreign exchange markets open one after the other during business hours and are listed for business. They are connected to each other through advanced communication equipment and computer networks. Market participants can trade all over the world. , Foreign exchange funds flow smoothly, and the exchange rate difference between markets is extremely small, forming a unified international foreign exchange market that operates globally and operates all-weather. The simple situation can be seen in the following table:
|Area||City||Market opening time (GMT)||Closing time (GMT)|
|North America||New York||12:00||20:00|
The world’s largest foreign exchange trading center-London
London is the oldest international financial center in the world, and the formation and development of the London foreign exchange market is also the earliest in the world. As early as before the First World War, the London foreign exchange market had begun to take shape. In October 1979, Britain completely abolished foreign exchange controls, and the London foreign exchange market developed rapidly. About 600 banks have gathered in the City of London. Almost all major international banks have branches here, greatly activating transactions in the London market. Due to the unique geographical location of London, at the intersection of two major time zones, connecting the Asian and North American markets, when Asia is close to the close, London just opens, and when it closes, New York is the beginning of a working day, so this period of time The investment is extremely active, and London has become the world’s largest foreign exchange trading center, which has an important influence on the trend of the entire foreign exchange market.
The most active foreign exchange market in North America-New York
After the Second World War, New York became the world’s dollar clearing center as the U.S. dollar became the world’s reserve and clearing currency. The New York foreign exchange market has rapidly developed into a completely open market and is the second largest foreign exchange trading center in the world. At present, more than 90% of the US dollar receipts and payments in the world are carried out through New York’s “interbank clearing system”. Therefore, the New York foreign exchange market has the function of US dollar clearing and transfer that other foreign exchange markets cannot replace, and its position is increasingly consolidated. At the same time, the importance of the New York foreign exchange market is also reflected in its important influence on exchange rate trends. The exchange rate changes in the New York market are more intense than in the London market. The main reasons are as follows: The economic situation in the United States has a significant impact on the world; various financial markets in the United States are developed, and the stock and bond markets , Foreign exchange markets interact and interconnect; speculative forces dominated by US investment funds are very active, contributing to exchange rate fluctuations. Therefore, the exchange rate changes in the New York market have attracted special attention from global foreign exchange dealers.
Asia’s largest foreign exchange market-Tokyo
Tokyo is the largest foreign exchange trading center in Asia. Before the 1960s, Japan implemented strict financial controls. In 1964, when Japan joined the International Monetary Fund, the yen was allowed to be freely convertible, and the Tokyo foreign exchange market began to take shape. After the 1980s, with the rapid development of the Japanese economy and the gradual rise of its position in international trade, the Tokyo foreign exchange market has also grown stronger day by day.
Since the 1990s, due to the collapse of the Japanese bubble economy, trading in the Tokyo foreign exchange market has been in a downturn. Trading in the Tokyo foreign exchange market is dominated by USD/JPY. Japan is a big trading country, and the trade demands of importers and exporters have a greater impact on the fluctuation of exchange rates in the Tokyo foreign exchange market. Since changes in exchange rates are closely related to Japan’s trade conditions, the Central Bank of Japan is extremely concerned about the fluctuations in the exchange rate between the U.S. dollar and the yen and frequently intervenes in the foreign exchange market. This is an important feature of the Tokyo foreign exchange market.