As a result of long-term economic crises and World War Two that was about to over in 1944 it was decided to conduct a meeting of representatives of 41 countries in Bretton Woods in order to reform traditional system of gold standards of national currencies. It was decided to use US dollar as a reserve currency just as well as gold. The price of ounce of gold was fixed to 35 US dollars, USA promised to keep fluctuations within +/-1% of that price and other countries promised to keep their currency fluctuations within +/-1% from their nominal price.
Valuable currencies today are:
The word value comes from the Latin “valeo”, “I stand”.
- Monetary units of countries with indication of type (paper, gold, silver);
- Monetary units of a number of foreign countries, including payment and credit documents expressed in such monetary units and usable for international accounts (cheques, bank bills etc.)
Basically, the Forex currency market is the sum of all transactions made by its participants (banks, exchanges, funds, investment, brokerage and external trading firms, as well as private persons, i.e. traders) to exchange some types of currency. Each second, the Forex market processes thousands of transactions, bringing profit to participants.
Classification of currency types:
- Freely convertible currencies have no limit on financial transactions of any kind, may be used by residents and non-residents of a country, and can be converted into any foreign currency;
- Partially convertible currencies are usually those with a number of restrictions on use by non-residents and a specific range of allowed transactions. Thus, most Western European currencies are partially convertible; restrictions on use by non-residents were removed in 1958, and now any amount on an account in such currencies may be converted to a freely convertible equivalent;
- Non-convertible currencies have restrictions for both residents and non-residents barring a number of financial transactions. They are not convertible and are used only inside their specific countries. For instance, non-convertible currencies are used in developing and dependent countries, and tied to the currency of a metropolitan country that sets exchange rates to give itself an advantage. Non-convertible currencies are not used on the Forex market.
The Forex currency market has two types of operations: buy and sell; each currency has demand and supply, allowing transactions with no real restrictions on volume or time. The Forex currency market also entails regulation of the exchange rates of various countries by balancing supply and demand.
- USD – the U.S. dollar. No doubt the backbone of the Forex market. Traders often call the USD the buck, the greenback, the dolly.
- EUR – the euro, common currency for the European space, second on Forex in terms of popularity. Before the euro, the DEM Deutschmark, Germany’s national currency, took its place.
- GBP (Great Britain Pounds) – the pound sterling, Britain’s national currency. Financier slang also includes the names sterling, pound, and cable.
- CHF – the Swiss franc. The slang term swissy is used alongside the official name.
- JPY – the Japanese yen.
- The Forex currency market also uses:
- AUD – the Australian dollar, often referred to as the aussie by financiers.
- СAD – the Canadian dollar.
- NZD – the New Zealand dollar, also known as the kiwi among Forex currency market traders.
Another incredibly important concept on the currency market is the currency exchange, which is a key link in the chain of currency market trading services.
Essentially, the currency exchange is a place where transactions are made. In this case, the currency is in free trade, shaping the process of constant currency exchange fluctuations. The main characteristic of the currency exchange is that exchange rates are shaped and noted as part of its operation, through the effect of supply and demand on the selling and buying of currencies. This very process is the main objective of the Forex currency exchange: shaping the exchange rates based on objective effects of the economic factors of specific countries. The currency exchange essentially regulates exchange rates.
With the development of technology, more and more people today use the currency exchange online, trading in real time via an internet connection. The online currency exchange fulfills a number of functions besides affecting exchange rates: it lays the technical groundwork for free trade, creates and applies the rules for trading participants to enter (covering e.g. funds, business reputation), and creates the conditions and rules for making the transactions themselves. The obligation of monitoring observance of these conditions lies with the currency exchange as well.
The largest currency exchanges are in London, New York and Tokyo. Thus, the online currency exchange can cover practically the entire world and provide nearly equal conditions for all currency market participants. This has made the Forex currency exchange the largest exchange in the world, with a turnover of more than several trillion dollars per day.
Currency codes are digital and symbolic designations of currencies defined by ISO 4217 international standard.
Symbolic codes of national currencies consist of two signs determining the name of a country by ISO 3166-1 alpha-2 standard and the first letter of the currency title.
There is a three-digit code for every national currency.
Standard codes used in informational systems to define various indicators:
|Hong Kong Dollar||HKD||344|
|New Zealand Dollar||NZD||554|
|South African Rand||ZAR||710|
|United States Dollar||USD||840|
EUR / Euro appeared on the 1st of January 1999 and united 11 European countries into one powerful economic alliance that deal with the fifth part of all goods and services produced in the world trade. The Euro-region (“Eur-area”) consists of: Austria, Belgium, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Finland and France and occupy the territory of 2365000 square kilometers with population of 291 million people (there are 269 millions in USA and 126 millions in Japan).
The creation of united European currency is undoubtedly the greatest financial experiment in history as there was no success in attempts to create economical unions before that.
The table below demonstrates cross-rate values of 11 currencies fixed on the 31st of December 1998.
|Currency||Units for 1 Euro|
|Belgian / Luxembourg Franc||40.3399|
After the World War II US dollar became the leading currency of the world. Today it occupies about 50-61% of central banks reserves that makes 1 trillion US dollars in total. US dollar is a universal payment means, an object of investments and an asylum-currency for other countries in case of financial and political crises.
All profit for national debt securities in United States is paid off in time and is tax-free that creates financial and economic stability of USA, attracts foreign governments and private investors.
While trading with other currencies US Dollar in most cases is considered to be generally accepted base currency.
Before World War II British pound sterling (GBP) was the world’s leading currency. During a period between two world wars pound started to lose ground and yield to US dollar after World War II mostly because of economic sufferings during war time. Secondly because people’s faith in pound was shaken by German counterfeiters’ actions during war.
Therefore, As of today there are about 50% of all transactions on London market are done with pound and about 14% on global market. British pound is very dependent on the labor market conditions, inflation and oil prices. The other designations of GBP are “pound” or “cable”. The last word used to define telegraph – the fastest means of transferring data between America and England with transatlantic underwater cable.
The volumes of transactions with Swiss franc yield to the volumes of USD, EUR, GBP, and JPY. Some time ago Swiss franc was some kind of an asylum-currency for Deutsche mark, for example during a crisis in Russia.
With the introduction of united European currency, volatility of Swiss franc decreased in comparison with Deutsche mark. Swiss National Bank ensures coordination of financial structures in Switzerland and Euro-area.
After World War II the rate of Japan yen was defined by American occupation administration and made 360 yens for one US dollar. In 1995 that rate raised to 80 yens and finally became stronger in the second half of 1998.
It is worth mentioning that Japan rates of interest of nowadays are extremely low and are kept by the Bank of Japan nearly at zero level, so that’s why national pension funds and investors invest their money in foreign securities like American national bonds and European assets.
Though Yen yields to US dollar and Euro as a reserve currency and an instrument for international payments it remains one of the main currencies for financial markets.
Before abolition and introduction of Euro, Deutsche mark (DEM) occupied the second place in world currency reserves after US dollar (about 25%). Stability of Deutsche mark rate depended on social and political conditions in Russia as Germany had close economic and political relationships with this country. Euro in some way is depended upon these factors too as Germany represents significant part of European Union economy.