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What
is an Exotic Currency?
Impact on Forex Markets?
The
exotic currency is defined as a currency with little liquidity
and limited dealing. The exotic currency
is neither a minor nor a major currency. Some of the currencies
that are considered minor are the Australian dollar, the Canadian
dollar and the New Zealand dollar. Some of the currencies that
are considered major are the Japanese yen, the Euro, the British
pound, the Swiss francs and the German mark. All exotic currencies
play a very important role in the forex market and are just
as important as all the major currencies.
The foreign exchange market has played a very important role
as the sole domain for financial institutions, most major banks
and for the central banks like the United States Federal Reserve.
The foreign exchange market has made some substantial profits
that are made annually by these banks and financial institutions
and these are now offered to you.
All countries are now becoming more dependent on one another
due to the increase in worldwide trade and foreign investments.
The state of a country’s economic activity can cause the country’s
currency to fluctuate, considering how the economic factors
can alter the structure of a currency’s interest rate. The
monetary health of a particular country depends on whether
the currency either appreciates or devalues.
Some banks make between 40-60%
of their profits from trading currencies when they allocate around 20-30% of their funds
into the foreign exchange market. Until recently, the American
public has been unaware of the forex market because the foreign
currency market had not been financially accessible to the
general population of traders and investors; also, because
of the minimum account requirement, which was beyond the means
of the average trader or investor. Now that the situation has
changed, instead of needing a minimum of $200K to open an account,
a mere $10K can be used to open an account.
The foreign exchange market is dominated by these five
major currencies: the U.S. dollar (USD), the British pound (GBP),
the Japanese yen (JPY), the European euro (EUR) and the Swiss
franc (CHF). All five of these currencies rank highly in their
activity and popularity thus accounting for more than 70% of
trading in North America alone. Other currency’s that are traded,
though not as easily, are the more exotic currencies including
the New Zealand dollar (NZD), Australian dollar (AUD), Canadian
dollar (CAD) and the French franc(XPF). The minor currencies,
which can also be considered as exotic currencies, account
for between 3-7% of the total market volume. Together, all
the major and minor currencies represent all the hard currencies
that are currently being traded in the forex market.
Top three most traded currency in the world:
The U.S.
dollar Index is the currency that gives relative
strength to the Dollar. The Index reflects the statistical
weaknesses or strengths of the trend of the U.S. dollar (USD).
If the index figure is fairly large, then the U.S. Dollar is
stronger, likewise if the index figure is smaller, then the
U.S. dollar has become weaker. The Dollar has become weaker
over the past two decades, mostly because of the world’s low
opinion of financial policies that result in prominent budget
deficits.
The European
euro and Europe has taken its first steps toward
what many economists call “Euroland” with its single currency,
the Euro. Europe’s eleven nations that use the euro are: France,
Spain, Belgium, Italy, Portugal, Austria, Finland, Luxembourg,
Ireland, the Netherlands and Germany. These eleven nations
consist of about 300 million people and also account for almost
20% of the worldwide economy. The European Union in addition
represents America’s largest foreign market, which is twice
the size of Japan and Canada combined. Trade flows between
Europe and the United States has been roughly in balance for
over nearly a quarter of a century, whereas in Asia, the U.S.
runs large trade deficits.
Japan, along with its Japanese yen, continues to be one of
the most undisputed global economic powers of today’s market
place. Since WWII, the Japanese government has been applying
all of its energy and resources into developing its economy
into one of the biggest economic powers in the world. The Japanese
yen has become the third most traded currency in the world.
# # # # # SolveYourProblem.com : 2007
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