foreign exchange rate

Currency The foreign exchange rate is the rate, ratio, or price at which the currency of one country is converted into the currency of another country. It can also be said that it is the "price" of the foreign currency expressed in the domestic currency. Foreign exchange buying and selling are generally concentrated in Financial Institution Groups such as commercial banks. The purpose of their buying and selling foreign exchange is to pursue profits by buying and selling at a low price to earn the price difference between the bid and the bid. The exchange rate at which they buy foreign exchange is the buying exchange rate, also known as the buying price; the exchange rate at which they sell foreign exchange is the selling exchange rate, also known as the selling price.

Basic Definition

Under the direct pricing method, the buying exchange rate is the amount of local currency paid by the bank to buy a unit of foreign exchange, and the selling exchange rate is the amount of local currency charged by the bank to sell a unit of foreign exchange. The middle exchange rate is the middle price between the buying exchange rate and the selling exchange rate, that is, the buying exchange rate is 10/2 of the selling exchange rate = the middle exchange rate, which is applicable to the buying and selling of foreign exchange between banks, which means that there is no profit in buying and selling foreign exchange between them.

Exchange rate overview

The concept of foreign exchange has a double meaning, namely dynamic and static. The dynamic concept of foreign exchange refers to a specialized business activity of converting the currency of one country into the currency of another country to settle international claims and debts. It is the abbreviation of International Exchange. The static concept of foreign exchange refers to the means of payment expressed in foreign currencies that can be used for international settlement. This means of payment includes credit instruments and securities expressed in foreign currencies, such as bank deposits, commercial bills, bank drafts, bank checks, foreign government treasury bills and their long and short-term securities. The international monetary fund explains: "Foreign exchange refers to the claims held by the monetary administrative authorities (the central bank, monetary management agencies, the Exchange Stabilization Fund and the Ministry of Finance) in the form of bank deposits, treasury securities, long and short-term government bonds, etc., which can be used in the event of a deficit in the balance of payments." According to China's "Foreign Exchange Administration Regulations" amended in January 1997: Foreign exchange refers to the following means of payment and assets expressed in foreign currencies that can be used for international settlement:

Foreign currency, including banknotes and coins.

(2) Foreign currency payment vouchers, including bills, bank deposit vouchers, corporate bonds, stocks, etc.;

(3) Foreign currency securities, including government bonds, corporate bonds, stocks, etc.

(4) Special Drawing Rights, European Currency Units (EUR);

(5) Other foreign exchange assets.

What people usually call foreign exchange is generally in its static sense. It is a foreign currency or a means of payment expressed in a foreign currency that can be used for international settlement. Exchange rate, also known as exchange rate, refers to the price of one country's currency expressed in another country's currency, or the comparison between two countries. inforeign exchange marketThe exchange rate is displayed in five digits, such as: EUR 0.9705, JPY 119.95, GBP 1.5237, CHF 1.5003, the minimum change unit of the exchange rate is one point, that is, the last digit of a number change, such as: EUR 0.0001, JPY 0.01, GBP 0.0001, CHF 0.0001 According to international practice, usually three English letters to represent the name of the currency, the above Chinese name after the English is the English code of the currency.

The exchange rate is also known as the "foreign exchange market or exchange rate". The rate at which a country's currency is exchanged for another country's currency is the price of another currency expressed in one currency. Due to the different names and values of currencies in the world, a country's currency is subject to an exchange rate against the currencies of other countries, that is, the exchange rate.

The exchange rate is the most important adjustment lever in international trade. Because the goods produced by a country are costed according to the country's currency, to compete in the international market, the cost of the goods must be related to the exchange rate. The level of the exchange rate also directly affects the cost and price of the goods in the international market, directly affecting the international competitiveness of the goods.

For example, a commodity worth 100 yuan, if the exchange rate of the US dollar to the RMB is 8.25, the price of the commodity in the international market is 12.12 US dollars. If the exchange rate of the US dollar rises to 8.50, which means that the US dollar appreciates and the RMB depreciates, the price of the commodity in the international market is 11.76 US dollars. If the price of the commodity decreases and the competitiveness increases, it will definitely be easy to sell, thus stimulating the export of the commodity. On the contrary, if the exchange rate of the US dollar falls to 8.00, which means that the US dollar depreciates and the RMB appreciates, the price of the commodity in the international market is 12.50 US dollars. High-priced goods will definitely not sell well, which will definitely hurt the export of the commodity. Similarly, the appreciation of the US dollar and the depreciation of the RMB will restrict the import of goods to China, and the depreciation of the US dollar and the appreciation You should now understand why the Japanese and Americans always yell about the appreciation of the RMB. The appreciation of the RMB will greatly increase the cost of Chinese exports in the international market, reduce the competitiveness of Chinese goods, and in turn stimulate China to import a large number of their goods. At the same time, you should also understand why China's insistence on not depreciating the RMB during the Asian financial crisis is a major contribution to the international community. If the RMB depreciates, the financial crisis of other countries will be even worse!

It is precisely because the fluctuation of the exchange rate will bring such a wide range of fluctuations to the import and export trade, so many countries and regions have implemented relatively stable currency exchange rate policies. The rapid and steady growth of the import and export volume of the Chinese mainland is largely due to the stable RMB exchange rate policy.

cause

1. Trade and investment

Importers and exporters pay in one currency when they import goods and receive in another when they export them. This means they settle their accounts in different currencies. Therefore, they need to exchange some of the currency they receive into a currency that can be used to buy goods. Similarly, a company that buys foreign assets must pay in the currency of the country concerned, so it needs to convert that country's currency into the currency of the country concerned.

2. Speculation

The exchange rate between two currencies changes as the supply and demand between them changes. A trader can make a profit by buying a currency at one rate and selling it at a more favorable one. Speculation accounts for the vast majority of foreign exchange market transactions.

3. Hedge

Companies that own foreign assets, such as factories, may be exposed to some risk when converting them into their own currency because of fluctuations in exchange rates between two related currencies. When the value of a foreign asset denominated in a foreign currency remains the same for a period of time, gains and losses occur when the exchange rate changes and the asset is converted into the domestic currency. Companies can eliminate this potential gain or loss by hedging. This is the execution of a foreign exchange transaction whose result just offsets the gain or loss on the foreign currency asset caused by the change in exchange rate.

Buying, selling, and the central exchange rate

Foreign exchange trading is generally concentrated in Financial Institution Groups such as commercial banks. The purpose of their buying and selling foreign exchange is to pursue profits, and the method is to buy at a low price and sell at a high price to earn the price difference. The exchange rate used by commercial banks and other institutions to buy foreign currency is called the "buying rate" (Buying Rate), also known as the "buying price"; when selling foreign currency, the exchange rate used is called the "selling rate" (Selling Rate), also known as the "selling price". The difference between the buying rate and the selling rate is generally 1/1000 to 5/1000. It varies from country to country. The difference between the two is the profit of commercial banks buying and selling foreign exchange. Add the buying rate and the buying rate and divide by 2 to get the Medial Rate. The foreign exchange price listed on the foreign exchange market generally lists the buying exchange rate and the selling exchange rate. Under the direct pricing method, a local currency number after a certain foreign currency represents the "buying price", that is, the amount of local currency paid to the customer when the bank buys foreign currency; the latter local currency number represents the "selling price", that is, the amount of local currency charged to the customer when the bank sells foreign currency. Under the indirect fare method, the opposite is true. The first foreign currency number after the local currency is the "ask price", which is the amount of foreign currency paid by the bank to the customer when it receives a certain amount (1 or 100) of local currency and sells foreign currency. The last foreign currency number is the "buy price", which is the amount of foreign currency the bank charges the customer when it pays a certain amount (1 or 100) of local currency to buy foreign currency.

The rise in the foreign exchange rate mentioned in the economic press shows that foreign currencies are more expensive under the direct quotation method, so the exchange of local currencies is more than before, and the number of local currencies exchanged for foreign currencies is less than before. The exchange rate of foreign currencies falls, but the situation is the opposite.