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Forex
Trading: Top Currencies to Watch
The prices of currency are influenced by a
number of reasons, like political and economic conditions in
the issuing country. Interest rates, inflation and
political stability are all factors in the prices of any currency. Although
governments can try to control their currency prices by lowering
the price, this is also called flooding the market, or by raising
the price and buying on a large-scale. Although the volume
of forex is sizable, it’s still impossible to have any control
of a market for any length time and because market forces normally
prevail in the long run, forex has become one of the fairest
investment opportunities made available.
In the world of forex, each currency is given its own three
letter code that is used in the forex quotes. The most common
and widely used currencies used in the forex market are USD (U.S. dollars), GBP (United Kingdom pounds), JPY (Japanese
yen), CAD (Canadian dollars), EUR (European euros), AUD (Australian
dollars) and CHF (Swiss francs). These currencies have been
the top foreign currencies to watch in the forex trading game.
The prices of the foreign currency exchanges are specified
in pairs by the forex quotes. By using a currency pair of U.S.
dollars and European euros in the example below, the first
currency is called the base (which is always at 1) and the
second currency is called the quote (which shows how much it
costs to buy one unit of the USD, or base currency):
USD/EUR = 0.8419
When reversed, this is the cost of USD to buy one euro:
EUR/USD = 1.1882
The base currency is growing stronger when the price of the
quote currency goes up, therefore only one unit of the base
currency can buy more of the quote currency. However, if the
quote currency begins to fall then the base currency will become
weaker. All forex quotes are perceived as a “ask” or a “bid”
price. The ask price is what sellers will sell the base currency
at, while at the same time be buying the quote currency. The
bid price is what the buyers will pay for the base currency,
also while selling the quote currency. For example, a symbol
bid ask of:
USD/CAD 1.2392 1.2397
This shows that you can buy one U.S. dollar for 1.2397 Canadian
dollars, or you can also sell one U.S. dollar for 1.2392 Canadian
dollars. You can find the exchange rates in cross country charts
that list numerous types of currencies with their values against
one another. There are also currency conversion calculators,
all of which are readily available online.
Along with the U.S. dollar, United Kingdom pound, Japanese
yen, Canadian dollars, European euros, Australian dollars and
Swiss francs as some of the top currencies to watch in the
forex trading game; some new currencies have been emerging.
Be sure to keep an eye out on these emerging currencies: CNY
(China yuan), CZK (Czech koruna), HKD (Hong Kong dollar), HUF
(Hungarian Forint), INR (Indian Rupee), KRW (Korean Won), MXN
(Mexican Peso), PLN (Polish Zloty), SGD (Singapore dollar),
ZAR (South African Rand), and THB (Thai Baht). These currencies
may not be one of the top currencies now, but they can make
for some good investments. Taking two examples out of all of
the emerging currencies:
The China yuan is only limited to financial institutions and
onshore companies and is not liquid. Currently the USD/CNY
rate is about 8.2770 and is being closely managed by the central
bank (PBOC). The Chinese government has resisted all calls
for them to revalue their currency; but as the Chinese government
continues to strengthen their banking systems and make reforms
in their economic policies, there is likely to be a possible
call for opening spot trading. The interbank money market does
not go beyond four months.
The Czech koruna is a convertible, yet free floating currency
that has been floating around since May 1997. All foreign investors
have unrestricted access to these local markets. London banks
continue to be very active in currency trading and accounts
for nearly 60% of the daily turnover. This market is liquid
for about five years. The Interest Rate Swaps, or the IRS,
is mainly driven by offshore banks.
# # # # # SolveYourProblem.com : 2007
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