Anal hotties 3
Below is a short list of some of the important terms pertinent
to foreign currency exchange.
Exchange Rate—The value of one currency expressed in
terms of another.
Forex—The foreign exchange market (forex) is a global,
decentralized, over-the-counter market for the trading of
currencies and is the largest market in the world (followed by the
credit market). This market is a necessity because one unit of
currency very rarely equals exactly one unit of another currency.
The forex is able to facilitate the receipt or payment of units of
currency that are equal in value.
Bid Price—The price that a buyer is willing to pay for a
unit of currency.
Ask Price—The price that a seller is willing to accept
for a unit of currency.
Bid-Ask Spread—The difference between the bid and ask
price. Theoretically, buyers want the smallest possible spreads,
while sellers want the highest spreads. Real-world currency
exchanges with brokers, banks, or businesses typically do not
follow precise market rates. As financial middlemen, most will set
exchange rates of their own at bid-ask spreads that return a
percentage as profit for doing business. Some call this profit a
fee or commission.
Pip—A pip is the smallest unit of value in a bid-ask
spread. For example, 3 pips are the difference between the currency
quote of EUR/USD 1.2800/1.2803. A pip is sometimes called a
point.
Currency Pair—A quote of the relative value of one
currency unit against another currency unit. The first currency in
a currency pair is called the base currency, while the second is
called the quote currency.
Interbank (bank-to-bank) Rate—This is the wholesale
exchange rate that banks use between themselves.
Major Currencies—This refers to a short list of the most
traded currencies, which generally stay the same year-to-year. Most
recently, this includes the U.S. dollar (USD), Euro (EUR), Japanese
yen (JPY), British pound (GBP), Australian dollar (AUD), Canadian
dollar (CAD), and the Swiss franc (CHF). The USD in a currency pair
with any of the others is known as a major currency pair.
Currency is a universal medium of exchange for goods and
services in an economy, and it is believed to have been used as
such dating back at least 3,000 years. Before this, it is assumed
that bartering, which is the exchange of goods and services without
the use of money, was likely used. Throughout history, currency has
taken many different forms. Some examples include coins, barley,
gold, silver, squirrel pelts, 8-ton carved limestone rocks, salt,
knives, cowrie shells, stamps, potato mashers, peppercorn, tea
bricks, and cheese.
History of Currency
As history has shown, anything that a group of people in an
economy attaches value to can be used as currency. The first
"official" currency was minted in the seventh century BC by King
Alyattes of Lydia in modern-day Turkey. For practical reasons,
Lydian currency took on the form of a round coin, which became the
first ever standardized unit of currency. Paper currency, on the
other hand, was invented in Asia and was brought back to Europe by
Marco Polo after his travels to Asia.
Modern Currency
Modern currency is much more uniform and regulated. Major
currencies in the world today take on the physical form of paper
bills or coins which are easily carried on a person, but most of a
person's currency is typically stored in digital accounts. The
value of these currencies is backed by the promise of their issuing
governments, which makes them fiat money (currency declared by the
government to be an official medium of payment but is not backed by
a physical commodity). Before fiat money existed, currencies were
usually backed by a commodity such as gold or silver.
While modern currency is physically represented by coins and
paper bills, most large-scale currency transactions are done
electronically. Modern technology utilizes sophisticated currency
exchange mechanisms and systems to exchange currencies between
digital accounts rather than physically. Even the exchange of
currency for everyday goods and services such as groceries or
haircuts involves physical currencies less and less due to the
growing popularity of debit cards, credit cards, and mobile
payments.
Cryptocurrency
Cryptocurrencies are digital currencies operating independently
of a central bank or authority, in which encryption techniques are
used to regulate the generation of units of currency as well as to
verify the transfer of funds. The current technology behind
cryptocurrencies is called blockchain, which is a decentralized
ledger of all transactions across a peer-to-peer network. A
prominent feature of blockchain is that participants can confirm
transactions without the need for a central clearing authority,
such as a central bank or government. The value of cryptocurrencies
fluctuates, just like a regular currency, and they can be traded in
the same way as any other currency. While bitcoin is currently the
most recognizable cryptocurrency with the largest market cap by
far, there are many other notable cryptocurrencies such as Ethereum
(ETH), Litecoin (LTC), and Ripple (XRP). Some experts say that
there is a slight chance that cryptocurrencies become the currency
of the future. For the purposes of this calculator, Bitcoin is the
only cryptocurrency available for conversion at the moment.
Currencies used in different countries are rarely, if ever,
exactly equal in value. As a result, exchange rates (the rate at
which a currency is exchanged for another) exist to enable the
equal exchange of currencies. Real-time exchange rates are supplied
by the foreign exchange market (forex), the same place where most
currency transactions take place. The forex is a global,
decentralized, over-the-counter market for the trading of
currencies. Each day, trillions of dollars (US) worth of currency
are traded. The market functions at high speeds, with exchange
rates changing every second. The most common forex transactions are
exchanges between the U.S. dollar and European euro, the U.S.
dollar and the Japanese yen, and the U.S. dollar to the British
pound Sterling.
Forex Quotes
A forex quote always consists of two currencies, a base currency
and a quote currency, sometimes called the counter currency. The
most common base currencies are EUR (European Union euros), GBP
(British pounds), AUD (Australian dollars), and USD (U.S. dollars).
The following is an example of a forex quote:
EUR/USD 1.366
In this example, EUR is the base currency and USD is the quote
currency, and what it means is that one euro is worth $1.366 USD.
In other words, $1.366 is the purchase price in U.S. dollars (aside
from external costs such as commission) of one euro. The base
currency always equals exactly one. On the other hand, if the
EUR/MXN rate (European Union euro to Mexican peso) is 17.70
instead, 17.70 Mexican pesos are required to purchase one euro. In
the real world, most exchange rates are given in terms of how much
a U.S. dollar is worth in a foreign currency. The euro is different
in that it's given in terms of how much a euro is worth in U.S.
dollars.
When buying foreign currencies, there are usually two prices
listed: the buying rate and the selling rate. They are sometimes
called the "bid price" and "ask price" for the currency pair,
respectively. Buying foreign currency from a bank or exchange
broker involves the selling (ask) price, which is usually higher
than the buying price because, like all merchants, currency brokers
sell high and buy low.
In the real world, the exchange rates can be influenced by
thousands of different factors. The following are a few:
- Differences in inflation—From an international currency
exchange standpoint, the currency of one economy with low inflation
rates will generally see a rise in currency value as purchasing
power increases. The currency of another economy with higher
inflation will usually depreciate in relation to a lower inflation
currency.
- Differences in interest rates—the interest rates may
affect the demand of a currency as well as the inflation rate of an
economy, which can drive the exchange rates up or down.
- Trade Deficits—If an economy is spending more than it is
earning through foreign trade (goods, services, interest,
dividends, etc.), it is operating at a deficit. In other words, it
requires more foreign currency than it receives through the sale of
exports, supplying more of its own currency than foreigners demand
for its products.
- Politics—Governments can enact policies or regulations
that directly or indirectly impact exchange rates. Also, economies
with stable politics generally make better foreign investments than
economies that constantly suffer from political strife. Perceived
instability causes a loss of confidence in currencies within
economies and a movement of foreign funds into more stable
economies.
- Economic performance—The performance of economies also
dictates the exchange rate of their currencies. When global capital
searches for the best place to make a return, strong economies are
usually a good choice. As a result, an influx of capital into a
certain economy will increase the buying power of that economy's
currency.
Anyone who desires to travel to a destination that uses a
different currency can benefit from doing some research in
advance.
- Whether exchange rates are better abroad or domestically
depends a lot on the destination, but generally, it is better to
exchange domestically before traveling to a foreign destination.
There are fewer time constraints, and exchanging domestically
removes the possibility of encountering difficulties that may arise
from trying to exchange money in an unfamiliar region where a
person may not speak the language. In the U.S., some banks and
credit unions provide exchange services that normally provide
better exchange rates and lower fees than other methods. It is also
possible to order foreign currency on some currency converting
websites that will deliver it via mail. In addition, international
airports normally have kiosks or stores for currency exchange. They
are convenient, but they normally have the worst exchange rates and
highest fees.
- When buying currency abroad, most people will simply choose the
most convenient option, typically kiosks situated in airports,
hotels, and high-traffic tourist areas that take advantage of
desperate people who can't be bothered to look for better deals. It
is advisable to first search for an overseas branch or ATM of your
bank. Otherwise, local banks and fee-friendly ATMs normally have
better deals.
- Destinations that are credit card friendly make it easier for
foreigners with credit cards or debit cards, as they don't have to
fumble over large amounts of foreign cash or pay large commissions,
since credit card or debit card exchange rates tend to be pretty
close to wholesale market rates. Also, credit cards and debit cards
are probably a safer alternative to holding a bunch of cash.
However, keep in mind that a lot of cards not oriented towards
travel perks will have foreign transaction fees.
- It is common for people to come back from foreign destinations
with some foreign currency left over. There's not much else to do
with it aside from keeping it as memorabilia, but it is possible to
sell it back to a bank or broker. Again, selling back to banks or
credit unions is normally preferred in terms of exchange rates and
fees.