WHAT IS FOREX TRADING [2]





The price, or rate, that is quoted is the amount of the second currency required to purchase one unit of the first currency. For example, if EUR/USD has an ask price of 1.2327, you can buy one Euro for 1.2327 US dollars.

There are so-called majors, for which around 75% of all market operations on Forex are held: the EUR/USD, GBP/USD, USD/CHF, and USD/JPY. As we see, the US dollar is represented in all currency pairs, thus, if a currency pair contains the US dollar, this pair is considered a major currency pair. Pairs which do not include the US dollar are called cross currency pairs, or cross rates. The following cross rates are the most actively traded:

EUR/CHF = euro-franc EUR/GBP = euro-sterling
EUR/JPY = euro-Yen

GBP/JPY = sterling-Yen AUD/JPY = aussie-Yen
NZD/JPY = kiwi-Yen

To give you a taste of what is happening in the Forex arena here are some historical Forex events.

One of the most interesting movements in the Forex market involving the British pound took place in the September 16, 1992. That day is known as Black Wednesday with the
British Pound posting its biggest fall. It was mostly seen in the GBP/DEM (British Pound vs. the Deutschemark) and the GBP/USD (British Pound vs. the US dollar) currency pairs.

The fall of the British pound against the US dollar in the period from November to December 1992 constituted 25% (from 2.01 to 1.51 GBP/USD).





The general reasons for this "sterling crisis" are said to be the participation of Great
Britain in the European currency system with fixed exchange rate corridors; recently passed parliamentary elections; a reduction in the British industrial output; the Bank of

England efforts to hold the parity rate for the Deutschemark, as well as a dramatic outflow of investors. At the same time, due to a profitability slant, the German currency market became more attractive than the British one. All in all, the speculators were rushing to sell pounds for Deutschemarks and for US dollars. The consequences of this currency crisis were as follows: a sharp increase in the British interest rate from 10% to
15%, the British Government had to accept pound devaluation and to secede from the European Monetary System. As a result, the pound returned to a floating exchange rate.

Another intriguing currency pair is the US dollar vs. the Japanese Yen (USD/JPY). The US dollar and Japanese Yen is the third on the list of most traded currency pairs after the EUR/USD and GBP/USD. It is traded most actively during sessions in Asia. Movements of this pair are usually smooth; the USD/JPY pair quickly reacts to the risk peaking of financial markets. From the mid 80's the Yen ratings started rising actively versus the US Dollar. In the early 90's a prosperous economic development turned into a standstill in Japan, the unemployment increased; earnings and wages slid as well as the living standards of the Japanese population. And from the beginning of the year 1991, this caused bankruptcies of numerous financial organizations in Japan. As a consequence, the quotes on the Tokyo Stock Exchange collapsed, a Yen devaluation took place, thereafter, a new wave of bankruptcies among manufacturing companies began. In 1995 a historical low of the USD/JPY pair was recorded at -79.80.

TO BE CONTINUE..
WHAT IS FOREX TRADING [2] WHAT IS FOREX TRADING [2] Reviewed by Tanim Rahman on 5:31:00 AM Rating: 5
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