FOREX EXCHANGE RATE

The Forex exchange rate means between which banks can to exchange foreign currencies for Australian dollars. It is the price of one currency in terms of another currency.

The prices are quoted from the banks at which they will buy and sell foreign currency, this prices depending on market forces and they are based on wholesale foreign exchange markets, which can change constantly throughout the day.

Every currency has ISO, this is a unique three character code, which means “International Standardization Organization”. This ISO codes are based on the two letter country code and third one is from the name the currency, for example: “The Great Britain Pound is known as (GBP), the United States Dollar as (USD), Australian dollar is (AUD), Japanese Yen is (JPY)”.

Every currency pair is expressed as two ISO codes separated by a division symbol, the first currency is named “base”, the second one have different names like: “quote”, “counter” and “secondary”. For example:

• USD/JPY Base currency/Secondary currency
• Usually on the right side of the currency pair is displayed the exchange rate
• USD/JPY=107.64

This example show us that one unit of the United States Dollar (the base currency) can be exchanged for 107.64 Japanese Yen (the secondary currency), this shows how much you have to pay in the quote currency to buy one unit from the base currency. The opposite action is, if you want to sell the base currency, the exchange rate tells you how much you get from the secondary currency for one unit of the base one.

The increment by which a currency can move is called a “pip”. The pip is the movement of the last two decimal places of a currency. For example if we have USD/JPY=108.36 and after a while it changed to 108.50, you would say it moved up with 14 pips. Or, if it depreciated to 108.20 you would say that it is fell with 16 pips.

Here are the three major groups of factors that influence on exchange rate development:

1. Technical Factors

The Technical analysis supposes that the market has a memory and consist primarily of a variety of technical aspects, which generate buy and sell signals or predict the market direction.

In the last years a lot of traders make their decisions according to the technical analysis, which regularly increases its influence on any real rate movement, in response of electronic analytical devices offered by Reuters, Dow Jones, CQG and others.

With the technical analysis you can forecast the price based on the history of the market movement. In the last 30 years the studies in this field of technical analysis have proved a science with its own philosophical system and set of operative axioms.

2. Fundamental factors

Fundamental factors of the trading strategies consist of macro-economic strategic assessments and worldwide news, they can affect to the market. This include the economic condition of the country’s monetary policy, their country of origin and other fundamental elements.

The US economy has the greatest influence on the world markets, it is known as world currency. About of the financial operations conducted in worlds markets are transacted in US dollars. The fundamental factors influence of the world markets are:

• An index of industrial production Inflation
• The level of real percentage
• The level of unemployment
• Gross national product

The exchange rate tendency of movement can be analyzed by reading publications or studying reviews of market situations in information medias like Reuters, Boomberg and Bridge. To predict when the market will begin to move, from different publications and economic indicators. The traders participate such a movement, which will be invariably lead by the majority in the market or more simple is to say :”don’t miss the boat”.

3. Aside from the fundamental and technical factors

Political speeches
Political events – war, political scandals, terrorist acts, etc
Insuperable circumstances – acts of nature (earthquakes, a tsunami, a typhoon, flooding, etc.)
Currency interventions by central banks.