Types of exchange rates (and currency markets)
– Whether fixed, that is determined by reference to a base currency (usually the U.S. dollar or the euro) by the State issuing currency. The rate can then be modified by a decision of devaluation (or revaluation) of that State, even a parallel market that appears often in the country or abroad if the official rate is unrealistically
– Whether floating and determinant for each transaction by the foreign exchange market. It is a global market interbank currency, less centralized on places specific quotation and trade, as based on data links between banks.
This is either:
– Course “spot”, that is to say, “spot” for immediate purchases and sales of foreign currency,
– Or a course “forward”, that is to say “futures” for foreign exchange future date.
Factors influencing the exchange rate
A currency is, above all, a debt “at sight” of the country that issued it. Its value relative to another will be at a given moment, the credit report that gives to a country that we would give to another country.
Traders express the dimension unit of exchange rate on one currency pair in dots called pips. Pip is the acronym for “price interest point” or “point swap”. Originally, as the name suggests, it meant the unit “offset” or “report” of forward exchange but was eventually applied to the unity of the spot market. It refers to the last decimal used:
In the case of the dollar, it is the fourth decimal place. A listing on three “pips”, which is standard on the interbank market of the euro / dollar will be well in the first example (1 GBP = 1.2345 USD) of paragraph 1 above: 1 GBP = USD 1.2343/1.2346.
in the case of yen, it will be the first decimal place, and scoring four “pips” will be always for the above example, 1 USD = JPY 110.93/110.97.
The “pip” represents a different percentage and not fixed for parity. This difference depends on:
– The currency in which we choose by convention to express the exchange rate (the “uncertainty” of the comparison), the other being taken for unit of goods (the “certain”).
– Number of decimal places of listing.