The Economics of Foreign Exchange and Global Finance


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The book is designed to integrate the theory of foreign exchange rate determi- tion and the practice of global finance in a single volume, which demonstrates how theory guides practice, and practice motivates theory, in this important area of scholarly work and commercial operation in an era when the global market has become increasingly integrated. The book presents all major subjects in international monetary theory, foreign exchange markets, international financial management and investment analysis. The book is relevant to real world problems in the sense that it provides guidance on how to solve policy issues as well as practical management tasks. This in turn helps the reader to gain an understanding of the theory and refines the framework. This new edition of the book incorporates two new chapters, together with – dating most chapters in the first edition, integrating new materials, data, and/or the recent developments in the areas. A new chapter on the portfolio balance approach to exchange rate determination is included, in addition to the major models – cluded in the first edition: the Mundell-Fleming model, the flexible price monetary model, the sticky price monetary model featured by the Dornbusch model and the real interest rate differential model. This makes the book inclusive in exchange rate theories. A second new chapter included is on issues in balance of payments or international transactions and their interactions with exchange rates, changes in exchange rates and exchange rate policies.Used Book in Good Condition

Exchange Rate



This lesson explains about exchange rates in the HandWallet Expense Manager app:
https://play.google.com/store/apps/details?id=mediavision.handwallet

When you purchase something in a different currency than the currency of the account HandWallet will automatically download the exchange rates for you and calculate the right amount in your home currency.
However, when you are dealing with foreign currencies things are usually more complicated. There is no “one” global exchange rate and the exact rate depends on many factors: the credit card or bank you are working with, the type and amount involved and so on.
So in the “currency exchange” section you can control how this really works. For example, the exact date used for the currency conversion, the source of the rate or even specify the rate manually.
If the credit card company charge you commission (as they usually do when you purchase abroad) you can use the “discount” section – it is good also for commissions.

Just few more words about “exchange rate sources”. These are usually central banks or known financial organizations like “Yahoo finance” or “Oanda”. HandWallet comes with several build in exchange sources. However you can always add more by pressing the “Data” tab at the top of the screen and then “Financial Data”.

For more information visit the HandWallet Expense Manager site:
http://www.handwallet.com
or the HandWallet Expense Manager forum:
http://www.handforum.com
Also you can find information about managing expenses & budget on ay of theses sites:
http://budget-manager.weebly.com
http://expense-manager.weebly.com
http://expense-manager-apps.weebly.com

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How do I get the best exchange rate on foreign currency?



Download today: bit.ly/21D6e5W

Exchange rates explained! The myth is cracked, check out this video to visualise what it means to get the real exchange rate with Revolut, The Global Money App. We’ll give you a hint: it means a lot more money for you to spend on the things you enjoy!

These numbers were accurate at the time of filming. Bank fee is an average fee extrapolated based on the combination of fixed fees and variable fees on exchange rates from several top UK banks. The exchange bureau fixed and variable fee is an average of several UK based providers and their disclosed information on their websites.

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Types Of Exchange Rate – Their Terms And Definition

An exchange rate represents the price value of one currency expressed in terms of another.

The cost of Money:

National treaties are vitally important to the way modern economics operate. They allow us to consistently express the value of an item across borders of countries, oceans and cultures. We need these values ​​because one nation's money is not accepted in another. You can not walk into a store in Japan and buy a loaf of bread with Swiss francs. First you have to go to a bank and buy some Japanese yen with your Swiss francs. An exchange rate is simply the cost of one form of currency in another form of currency.

Types of Exchange rates:

Spot Rate

Spot rate is defined as the one which applies to 'on the spot' delivery of currency. In spot transaction the actual exchange of money for goods takes place with minimum possible delay. The spot rate is the value of currency under consideration at that very moment.

Forward Rate

Forward rate is the one applicable to a transaction, which will occur at specified point of time in future. Here, the value is fixed today but the settlement is at some specified date in the future.

Future Rate

The one which applies to future delivery of the currency is known as future rate. Here, the contract is made today. However, the payment is done on some fixed date in the future with the rate-value on that day.

The floating Exchange Rate

The market determinates a floating rate. A currency is worth whatever buyers are willing to pay for it. This is determined by Supply and Demand, which is in turn driven by foreign investment, import / export ratios, inflation and a host of other economic factors. Generally, countries with mature, stable economic markets will use a floating system. Virtually every major nation uses this system, including US, Canada and Great Britain. Floating exchange rates are considered more efficient, because the market will automatically correct the value to reflect inflation and other economic forces.

Pegged Exchange Rate

A pegged, or fixed system, is one in which the value is set and artificially maintained by the government. The rate will be pegged to some other country's dollar, usually the US dollar. The determined value will not fluctuate from day to day.

Hybrid Exchange rates

A few exchange systems are 100% floating, or 11% pegged. Countries using pegged rate can avoid market panics and inflationary disadvantages by using a floating peg. They peg their value to the US dollar, and that unit does not fluctuate from day to day. However, the government periodically reviews their peg, and makes minor adjustment to keep it in line with the true market value.



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How to Get the Best Foreign Exchange Rates When Traveling Overseas

Research Market Rates Ahead-of-Time

There are many steps to getting the best foreign exchange rates when traveling overseas. It begins by doing your research. Check out online and printed material for foreign exchange, local economic conditions, and travel tips. If a local area is struggling economically, it may offer you better foreign exchange rates. Compare the local currency price over a year to see dramatically the currency exchange rate changes.

Exchange rate research will provide you with a solid reference point. People will be less likely to scam you when they realize that you are knowledgeable about foreign exchange rates. As you travel, continue to check the currency exchange rates in the newspapers or on the Internet.

Airports, ferries and trains

Airports, train stations, and ferries offer convenience, but usually have slightly higher foreign exchange rates. Another option is to check out the airport rates on the Internet; you can order the local currency online for a better rate and pick it up at the airport – combining convenience and price. Train stations and ferries will tend to have more limited hours of operations.

Banks

Exchanging your home currency for local currency before you travel is one viable option. In the country you visit, there will also be foreign exchange banks that serve individuals and businesses that need foreign exchange services.

Other Foreign Exchange Options

Some high-traffic tourist areas may have expensive foreign exchange rate services at smaller shops and larger stores.

Sometimes, hotels offer decent foreign exchange rates as a service to their customers. You could receive a money transfer while you are overseas; it is cheap, safe, and fast. The best foreign exchange rates can be found at banks and post offices. Gift cards or travelers checks are also options.

Some local exchange services charge up to 25% for currency exchange. Shop around, compare two to three rates before completing your foreign currency exchange transaction.

Foreign Exchange Brokerage

Foreign exchange brokerage firms buy contracts in large volumes at attractive rates. These highly-trained professionals are experts at trading international institutes. They usually offer better rates than banks, but also have higher fees.

Different Foreign Exchange Rates

You may run into a number of different rates: "official," "local," "market," "buy," and "sell." Be careful, some shops will quote one rate to attract your attention, then they will tell you that you only qualify for the higher rate.

When there is a "local" foreign exchange rate that is different from the government's "official" rate, you can usually get a better deal. Some good rates only apply when large amounts are replaced.

Credit Cards

Going through a bank for the foreign exchange rate can offer the best rates and lowest fees. When consumers use a debit or credit card, their banks will give them the same foreign exchange rate that banks charge each other. Some banks and credit card companies will charge fees of up to 3% on all purchases made with the currency.

Before you travel, do your research into your financial institution's most current policies, rates, and fees for exchanging foreign currency.

Some travelers purchase a debit card, special credit card or cash passport for voyages overseas with low or no fees on foreign exchange. These are safer than cash. Be careful, because these cards have special rules.

You can avoid some ATM fees by using your credit or debit card for large purchases – housing, travel and food.

Additional Fees

Many additional fees could be charged when you use a credit card overseas:

1. Foreign exchange "load" fee (currency conversion fee) 2. Cash withdrawal fee 3. Interest charge on balance 4. Handling fee.

There might be other commissions, surcharges, and fees that may apply. Flat rates and minimum amount restrictions may also apply. Calculate the net foreign exchange rate after all transactions are added. Be careful of "commission-free" offers because they will usually provide a less competitive exchange rate.

Beware of "dynamic currency conversion," promises; venders will offer to charge your fees denominated in your home currency, the AUD, while you are in the in the foreign country. This might sound good, but the fees are usually excessively high. When in a new locale, you should get used to pricing everything in the local currency.

ATM

Automated Teller Machine (ATM) networks have grown worldwide. If you have an account with a major bank that is part of an extensive network, then you might be able to withdraw the local currency from the ATM wherever you go. This will allow the bank at home to perform the conversion.

The money you withdrawal will be in the local currency. It is wise to withdraw larger lump sums because there might be 1 to 3% ATM fee charged. There may also be a "daily withdrawal limit."

You could check out ATM, credit card, or airline websites to see if their facilities are available where you go. There are frequently affiliations, combinations and links to large networks of financial services between these groups – for example, the American Express Qantas credit card.

Discuss all relevant rates and policies with your bank before you travel.

Exchange Rate Calculator

The Exchange Rate Calculator will help you calculate the "most competitive market rates" by finding the mid-point between buy and sell rates for large transactions. Exchange rates can change quickly.

Having a small calculator can help you figure the exchange rate; it will also make you look more serious to others. You can also go onto the World Wide Web to find an Exchange Rate Calculator.

Tips for Getting the Best Foreign Exchange Rates When Traveling

Getting a small amount of the local currency before you travel makes sense since the local airport, bank, or exchange service may be closed when you arrive. You may need an emergency cash source for purchasing something en route: a snack, umbrella, or taxi ride.

Plan your budget ahead-of-time. Large cities will offer more options for foreign currency exchange. You will probably need to carry some local currency to smaller towns due to fewer foreign exchange options. Avoid exorbitant fees by planning ahead.

Local taxi drivers and hotel employees may know the best places for foreign exchange. If you must exchange one currency for another overseas, make sure you have a well-known currency that will be accepted in the locality you are visiting. Sometimes, wise locations may prefer to actually hold your well-recognized, "more convertible," AUD rather than less-popular local currencies; they might give you a better rate.

Some treaties are not very valuable compared to your higher denominations of AUD. You might be required to bring a small bag to carry the local currency after exchange. Most countries still permit haggling, so show confidence and be patient.

Trust Your Instincts

Beware of black market moneychangers who might be involved in a number of scams, including counterfeiting, theft and shorting you money. They probably will not expect you to count out large amounts of bills. Also, some local banks are crooked; they might think that you will travel before you realize that they have not exchanged the correct amount of money.

If you feel something is not right, you are probably correct – trust your instincts.



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How to Determine an Exchange Rate

An exchange rate is the cost for exchanging one currency for another. Exchange rates oscillate regularly throughout the week since currencies are being actively traded. That makes the price go up and down. The price for a currency on the market differs from the rate you will get from your bank when you exchange currency.

Market Exchange Rates

Traders and companies buy and sell currencies around-the-clock during the week. In order for a trade to take place, a currency must be exchanged for another. For example to buy British Pounds (GBP), another currency must be used to buy it. Regardless of what currency will be used a currency pair will be created. If U.S. dollars (USD) are used to buy GBP, then the exchange rate is for the GBP/USD pair.

Understanding an Exchange Rate

If the exchange rate for the USD/CAD pair is 1.0950, that means one U.S. dollar costs 1.0950 Canadian dollars. The first currency in a pair always stands for one unit of that currency. The exchange rate shows how much of the second currency is necessary to buy one unit of the first currency. In other words, this rate tells you how much it costs to purchase one U.S. dollar using Canadian dollars.

In order to figure out how much it costs to buy one Canadian dollar using U.S. dollars the following formula should be used: 1/exc. rate. In this case the position of currencies will switch (CAD/USD).

Conversion Spreads

When people go to the bank to exchange currencies, it is most likely that they won’t get the market price that traders get. This is because the bank will markup the price to make a profit. If the USD/CAD rate is 1.0950, the market will say that to buy one U.S. dollar it costs 1.0950 Canadian dollars. However the bank says it may cost 1.12 Canadian dollars. This difference represents the profit. If you need to calculate the percentage discrepancy, take the difference between the two exchange rates and divide it by the market exchange rate as follows: 1.12 – 1.0950 = 0.025/1.0950 = 0.023.

Currency exchanges and banks compensate themselves for this service. The bank offers cash, while traders do not deal in cash in the market. To get cash, processing, wire or withdrawal fees will be applied to a forex account. For most people who are looking for currency conversion, getting cash momentarily and without fees, but paying a markup, is a reasonable compromise.

Determine Your Needs

If you need a foreign currency, you should use exch. rates to calculate how much foreign currency you need as well as how much of your local currency you will need to purchase it.

If speaking about Europe, you will need euros (EUR) and will need to check the EUR/USD rate at your bank. The market rate can be 1.3330, but an exchange house can charge you 1.35 or more.



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The Foreign Exchange (Forex) Market and the Two Main Provisions of Trade – Part 1

The Foreign Exchange market is the largest financial market in the world and spans the globe. Known also as the Forex market or FX market, the market is 24 hour in operation and is not limited to single exchange locations with in countries but is connected where ever one currency is exchanged for another in the process of doing business.

Traditionally, the trade was primarily conducted at banks and special exchange bureaus, but today it can be literally anywhere via ATMs, hotel and from your own PC or laptop. Traders can be huge multi-national corporations, small exporters, banks, governments etc., or you. When you buy an item over the internet in another currency using your credit card or if you are on holidays and want some quick local currency cash from an ATM, you are setting up and will engage in a forex deal. You will sell / buy, a currency at a rate set by the banking institutions involved and as determined by the market. Most small and intermediate transactions are done directly using a retail bank. When you take your cash, your bank calculates an exchange rate value in your home currency for the amount you have withdrawn and deducts that from your account. Your bank will probably charge you a currency conversion transaction fee and the exchange rate that it sets that day for the currency you want. The bank sets a buy rate and a sell rate, two prices which are slightly different and which enable the bank to profit from your small deal by selling you the currency you want at a slightly higher rate of exchange compared with the better rate they will receive when they offset your deal via bulk trades in the market that their dealing room will do. So they make a profit on this price difference between the buy and sell price they set for the retail customer versus the better buy and sell price they can get as a heavy weight in the market.

The difference between the buy price and the sell price with a currency pair is called 'the spread'. When people shop for rates they are looking for a smaller, tighter spread difference which means a better rate of exchange and if you shop around you will find quite a bit of small variation in the spread, sometimes between retail banks. Third party exchange bureaus and hotels have to offset your trade with a bank and the bank does so in turn using the larger bulk market, so the non-bank bureau's spread has to be greater. For example, this gives them the chance to off-load the physical currency you have sold them in exchange for the local, at a small profit to a banking institution. Forex exchange booths at airports usually have the larger spreads in the retail market which means a poor exchange deal for you, less dollars in the currency you are exchanging for, and so the higher cost of an on the spot last minute convenience when you are rushing for a flight.

Huge amounts of trade from so many sources and countries makes for a volatile and active market that is good for the speculator and should, as a measure reflect the changing economic performance of one country's economy in relation to another country's economy. The business person or consumer who is just looking for the best rate and most secure way to pay in a currency exchange situation can make use of certain tools available to select a rate in the market that they feel serves them best and then to secure that rate over a given time period against further fluctuation. This then means that a business can execute the transaction in the future without finding that they have been adversely affected by a value change before the transaction has been finalized. An example would be a small business looking for a stable, set forward, exchange value when ordering a machine that will be delivered in six months time. It would be great if the currency they pay in the machine goes down in value, meaning the machine costs less, but what if the currency were to go up? Business relationships on budgets and foreseeable consequences and so it is usually unacceptable to leave a deal exposed to the currency market.

We can see that both types of trade use the market to their advantage in different ways for different purposes. Speculation traders seek to make profit yielding trades in the market from speculation on value change. They can do this using a broker, self operated manual or semi automated forex trading, or a forex robot trading system. Although near forex trading for profit was once the domain of brokerage homes, the Internet has revolutionized forex trading making easy forex platforms and automated trading methods available to almost anyone.

Businesses and corporations engaging in inter-country business seek to secure a locked in and stable rate to reserve profit margins and budget forecasts. Businesses also now use the internet to quickly and easily arrange and manage forex trades.

In part 2 we will continue to look with more detail at the two primary but different reasons for trading forex.

Thanks for reading and see you again for the next article.

Eric Bray



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The Foreign Exchange "Forex" Market and the Two Main Provisions of Trade – Part 2

In part 1 we looked at the global nature of the forex market and that many of us may engage in forex deals without really being conscious of it. We took a look at what makes the price spread on rates and how this can vary depending on who we are doing our deal with. We looked at the speculative trader who is seeking to make profits on market value changes and so loves volatile markets that give opportunity. We also looked at the other type of trader being primarily business and corporate entities. These traders seek risk reduced business transactions across countries and different currencies. In part 2 we take a closer look at the two types of deal and trader.

The depth of the forex market is truly astonishing with a staggering average daily turnover of 1 Trillion US Dollars, making it by far the largest financial market in the world.

The market opens in Sydney and then follows the start of the new business day to other center openings such as Tokyo, London, New York.

The huge diversity of traders and players in the market, both in terms of background and deal size, makes for a truly exciting market. This can be a real conundrum for governments seeking to control their country's currency exchange level in the market through central bank intervention – not always successfully. This liquidity and volatility is perfect for forex traders who want to make profitable forex trades on exchange differences and also ideal for the many automated trading systems now being used by lay traders and professionals. Before the development of internet trading access for the general population in the 1990's, bank dealing rooms and large brokerage firms developed computerized trading models to reliably control speculative risk in trading and reduce the reliance on human brokers. The recent rush to access the forex market, using similar tools by lay traders, has seen the development of forex robot trading systems that are modifications or facsimiles of the systems used by the larger institutions. Many of these automated trading systems that are offered on the internet are light weight, poor quality and do not reliably deliver the profitable trades that are promised, but some of the systems do – if set up and used correctly.

Most forex robot trading models use mathematical algorithms and precise programming to make trades in a controlled manner. Some forex robots are designed to perform many trades delivering small gains over very short trade time windows such as one minute. They can be set to stay on 24 hours and trade the full time of the world market with no need of a human broker. Other automated forex systems are designed to use much longer trade time windows such as 4 hour. The point here is that the trading robots and automated systems vary in the designed method of the trading system but all are intended to isolate human emotion, greed and error by automatically delivering the bulk of the trades made as profits against a smaller number of loss trades , thus incrementally growing a profitable account. The added advantage of these automated trading systems is that they take away the need for thorough knowledge of the market and forecast systems that broker and dealers once had to know and rely on. Obviously, knowledge and understanding is a huge benefit when trading the market for profit, even using a forex robot to do it for you. With little or no knowledge, the consumer is still left with the decision of choosing a forex trading robot that works and setting it up correctly. Some forex robots do have problems in that trading system design is not flexible and sophisticated enough to cope with unusual market conditions and hence can fail when the market changes. Other forex robot systems are more robust and sophisticated in their programming design and they are able to detect market conditions where trades, using their particular method and model, must be avoided.

At its simplest, for business, foreign exchange is essentially about exchanging one form of currency for another. Complexity occurs due to three factors. Firstly what is the foreign exchange exposure (how much and what currencies?), Secondly what will be the rate of exchange, and thirdly when the actual exchange occurs. It is through trying to control these factors that a trader or customer seeks the best advantage in making a deal.

Foreign exchange exposures come in about many diverse situations. A traveler has the risk that if that country's currency appreciates against their own, their trip will be more expensive.

An exporter, who sells a product in foreign currency, has the risk that if the value of that foreign currency falls then the earning and profit in the exporter's home currency will be lower.

An importer who buys goods priced in foreign currency has the risk that the foreign currency will appreciate causing the local currency cost to be greater than expected and so reducing profit.

Fund Managers and companies who own foreign assets are exposed to falls in the contracts where they own the assets and so are exposed. The exposure affect would occur if they were to sell the foreign assets in a falling market so that their exchange rate would have a negative effect on the home currency value that they would realize.

Other foreign exchange exposures are less obvious and relate to the exporting and importing activities in your home country where the negotiated price is being effected by exchange rate movements. The consumer would see this in retail where prices may gradually change, rising or falling, according to exchange rate variation and the retailers effort to maintain the margin, or offer a discount with no impact on his margin factor.

The aim of foreign exchange risk management is to stabilize a business cash flow against exchange exposure and reduce uncertainty from financial forecasts. There are also a range of hedging instruments that achieve exactly that, and two forms of the market that enable these instruments to work for the business person. One form of the market gives an immediate or 2 day deal maturity exchange price (spot price market) the other form is the forward or future market that enables an exchange deal to be locked in, months in advance of the exchange taking place, but takes into account a forward adjustment rate on the spot rate at the time the transaction is arranged. The forward adjustments rate allows for interest rate changes on a forward 'future' contract where a future settlement date is agreed for the deal. It is a bit like taking out a loan at a fixed rate.

These are all issues of concern for standard business between currency types where seeking a reliable, predictable or stable exchange rate is the major concern for business. This is needed so that profits from business activities, unrelated to exchange rate issues and disconnected from them, can be relied on in the home currency.

We can now understand that the speculator trader is not as concerned about stability but relations on market volatility and movement between currency pairs to create a profit making market environment and so opportunity arises through a rising or falling value in one currency against another. The business and corporation looks for the opposite to stabilize budgets and deals.

Banks, traders and even Governments, trading to profit from value changes between currency pairs, can effect the market and speculators may abhor flat stable markets; but the market is really a barometer measuring the value of one currency relative to another as determined by a many complex economic and political factors in each country.

So it is that the trader must still, through prediction, try to ride changes in currency values ​​to make profitable trades. The trader does so using brokerage, online trading or online automated trading and employing forex robot tools, technical or fundamental forecasting methods. The business person, looking for stability and reduced risk in his currency trading, tries to reduce his exposure to value changes via hedging and forward contracts.

Thanks for reading and see you again for the next article.

Eric Bray



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Forex Trading – The Determinants of Exchange Rates

Currencies' trading involves trillion of US dollars everyday. Currency exchange transactions are facilitated by banks and financial institutions. There are lots of factors which can decide or influence the changes of exchange rates. These factors can be categorized under market forces and government intervention.

Dual forces of Supply and Demand

The exchange rates are impact by the economic events affecting the supply and demand for currencies. First, trade flow between countries reflects the demand of goods and services for a country which also indicates the demand for the country currency to conduct trade.

Second, government policy such as tax policy, labor law and tariff may influence the changes in supply and demand for currency.

Third, other economic conditions such war, political instability and a real price "shock" will affect forex too. An example of a real price "shock" is the increase of oil price drastically. Therefore, changes in any of these real economic factors will cause the supply and demand for currency value to shift and affects the exchange rates.

Government Intervention

Government can influence changes intentionally and unintentionally. Government can intervene in currency market through Central Bank buying or selling home currency in exchange of its foreign currency reserves. Government fiscal and monetary policy may unintentionally trigger the movement in forex market.

Type of Exchange Rate Regimes

There are 3 types of exchange rates regimes: fixed exchange rate, free float and managed float. In fixed exchange rate, the government decides a fixed exchange rate and the system allows trade activities during volatile market situation as uncertainty and risk are minimized. However, continuous monitoring required government to set away reserves. In free float system, forces of supply and demand determined the exchange rate and do not require government intervention. This system invites speculation that is volatile and unstable. In managed float system, government intervene to ensure the exchange rate remain within a specified range. Central Bank will buy or sell home currency to ensure the exchange rate is within an allowed floating range.

In the short run, government fiscal policy and monetary policy may affect the dual forces of supply and demand thus determined the exchange rates. However, no policy can overtake market forces in the long run.



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