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Currency is a common means of an economy's exchange of goods and services and is known to have been used as such for at least 3,000 years. It is believed before this, that bartering, which is the exchange of goods and services without the use of money, was possibly used. The currency has adopted many different forms throughout history. Examples include coins, barley, gold, silver, squirrel pelts, 8-ton calcareous rocks, salt, knives, cowrie shells, stamps, potato mashers, peppercorn, tea bricks, and cheese.
Below is a shortlist of some of the key foreign currency exchange words applicable.
Exchange rate— one currency's value expressed as another currency.
Forex — Forex is a regional, open, over-the-counter market for currency trading, and is the world's largest market (followed by the credit market). This competition is a requirement since one currency unit is very rarely equivalent to exactly one currency unit of another. The forex may facilitate the receipt or payment of equivalent in value currency units.
Ask Price— The price a seller will consider for a currency unit.
Deal-Ask Spread — The difference between the price of the deal and the price of the ask. Theoretically, buyers want the least spreads possible while sellers want the largest spreads. Real-world currency exchanges with traders, banks, or businesses typically do not meet correct market rates. As financial intermediaries, most will set their own exchange rates at bid-ask spreads which return a percentage as profit for doing business. Some call that a charge or commission for profit.
Pip — A pip is the least value element in a bid-ask array. For example, three pips are the difference between EUR / USD 1.2800/1.2803 currency quotes.
Bid price — The amount a buyer wants to pay for a unit of currency
Exchange rates can be affected by thousands of different variables, the following are a few: inflation differences — From an international currency exchange point of view, one currency with low inflation levels should usually see a rise in currency value as purchasing power rises. Another economy's currency with increased inflation would normally depreciate in comparison to a currency with lower inflation.
Interest rate differences— the interest rates can influence a currency's demand as well as an economy's inflation rate, which can push up or down the exchange rates.
Trade deficits — If an economy spends more than it receives from foreign trade (goods, services, tax, dividends, etc.), it operates at a deficit. In other words, it needs more foreign currency than it receives from export sales, producing more of its own currency than the demand from foreigners for its goods.
Politics — Governments may enact policies or regulations that impact exchange rates directly or indirectly; Economies with stable policies more generally make foreign investments easier than economies that are continuously suffering from political strife. Perceived uncertainty causes the economies to lose confidence in currencies.
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