foreign exchange bank specialize in providing
Answers
Explanation:
Foreign Exchange banks: These banks specialize in financing foreign trade.
Answer:
Foreign exchange refers to exchanging the currency of one country for another at prevailing exchange rates. Let us take a close look at the meaning of foreign exchange. Different countries have different currencies. Foreign exchange converts the currency of one country into another.
Explanation:
Foreign Exchange Services means the provision of foreign exchanges services to Clients, including but not limited to: selling, purchasing, and delivering currency transaction. These transactions may be spot or forward transactions or derivatives.
Foreign exchange refers to exchanging the currency of one country for another at prevailing exchange rates. Let us take a close look at the meaning of foreign exchange. Different countries have different currencies. Foreign exchange converts the currency of one country into another.
The foreign exchange market is like any other market insofar as something is being bought and sold. However, the foreign exchange market is unique in two ways:
A currency is being bought and sold, rather than a good or service
The currency being bought and sold is being bought with a different currency.
Key Terms
Key term Definition
exchange rate the price of one currency in terms of another currency; for example, if the exchange rate for the Euro (
€
€€) is 132 Yen (
¥
¥¥), that means that each Euro that is purchased will cost 132 yen.
foreign exchange market a market in which one currency is exchanged for another currency; for example, in the market for Euros, the Euro is being bought and sold, and is being paid for using another currency, such as the yen.
demand for currency a description of the willingness to buy a currency based on its exchange rate; for example, as the exchange rate for Euros increases, the quantity demanded of Euros decreases.
appreciate when the value of a currency increases relative to another currency; a currency appreciates when you need more of another currency to buy a single unit of a currency.
depreciate when the value of a currency decreases relative to another currency; a currency depreciates when you need less of another currency to buy a single unit of a currency.
floating exchange rates when the exchange rate of currencies are determined in free markets by the interaction of supply and demand
Key takeaways
Why the demand for a currency is downward sloping
When the exchange rate of a currency increases, other countries will want less of that currency. When a currency appreciates (in other words, the exchange rate increases), then the price of goods in the country whose currency has appreciated are now relatively more expensive than those in other countries. Since those goods are more expensive, less is imported from those countries, and therefore less of that currency is needed.
For example, suppose the price of a cell phone in the U.S. is
$
400
$400dollar sign, 400, and the current exchange rate in Japan is 90 ¥ per dollar. That means that it takes:
90
×
$
400
=
36
,
000
¥
90×$400=36,000¥90, times, dollar sign, 400, equals, 36, comma, 000, ¥ to buy the same cell phone in Japan. If two cell phones are imported into Japan, then a total of 800 US dollars will be needed to buy these phones.
However, if the dollar appreciates so that it now takes
100
¥
100¥100, ¥ to buy a dollar, the same cell phone now costs
100
×
$
400
=
40
,
000
¥
100×$400=40,000¥100, times, dollar sign, 400, equals, 40, comma, 000, ¥. Because cell phones are more expensive, only one is imported into Japan from the United States, so the quantity of US dollars that Japan wants will fall from
$
800
The equilibrium exchange rate is the interaction of the supply of a currency and the demand for a currency
As in any market, the foreign exchange market will be in equilibrium when the quantity supplied of a currency is equal to the quantity demanded of a currency. If the market has a surplus or a shortage, the exchange rate will adjust until an equilibrium is achieved.
For example, suppose Westeros is a trading partner of Hamsterville, and the currency of Westeros is the Westeros Gold Dragon (
Like any surplus, this will place downward pressure on the price. If the exchange rate is flexible, then the exchange rate will decrease until the quantity supplied is equal to the quantity demanded.
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