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Currency Conversion

Rates

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The Forex market was set up to make sense

of and give stability to currency conversion

rates.

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REX-TRADING/CURRENCY-CONVERSION-

RATES

Currency conversion rates are the rates at

which the money of one country is

exchanged for the money of another country.

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For example, the current rate of exchange

between the US dollar and the Mexican peso

is 13.24 pesos to the dollar.

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As a simple example, you deal with currency

conversion rates when you change dollars

for pesos, dollars for Yen or British pounds

for US dollars at a money changer when you

are traveling.

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But these rates are different from official

currency conversion rates. That is because

the money changer needs to make a profit

and quotes different rates for buying and

selling one currency versus another.

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Currency conversion rates are better when

you use your VISA card because the

company gets the Forex rate established by

daily online currency trading.

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And, it is the international business

community and central banks the set official

currency conversion rates with which we are

concerned today.

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Supply and Demand Sets Prices

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The major Forex markets are London, New

York and Tokyo.

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Because these markets are spaced out

around the planet there is active currency

trading virtually twenty-four hours a day on

each and every business day throughout the

year.

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In Forex markets currency conversion rates

are quoted as spot rates which is the current

exchange rate and forward exchange rates

which is the rate traded today but for delivery

at a specified later date.

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The strength of an economy, interest rates of

a country and central bank policy determine

the strength of one currency versus another.

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If interest rates go up in the USA and down in

Brazil traders tend to buy US dollars.

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If US employment numbers falter while

Japan’s economy is humming along the

dollar tends to fall versus the Yen.

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Currency conversion rates are largely

determined by what traders believe will

happen in the near future as market

sentiment ebbs and flows.

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Central

Banks, National

Economic Policy and Politics

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Currency conversion rates are not solely

determined by economic and interest rate

factors.

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A prime example is the use of currency

manipulation by exporting nations to keep

their currency cheap in order to sell more

products to other nations.

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Japan has a history of selling products to the

USA and then keeping the dollars that they

receive as a reserve currency.

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They do this rather than converting dollars

received into Yen. This has the effect of

buying dollars with Yen and tends to raise the

value of the dollar and reduce the value of

the Yen.

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Taiwan followed suit with this strategy as did

South Korea and eventually China entered

the picture and kept their dollars as profits

and bought US treasury bills to boot.

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This sort of currency manipulation stems

from well thought out economic and

monetary policies and has had the effect to

stimulating Asian economies at the expense

of North America and Europe.

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Trading currencies takes place for two

reasons.

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One is international business such as

described with China, Japan and the rest of

the world.

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The other is currency speculation. Trillions of

dollars in currencies are exchanged every

trading day.

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This provides a lot of room for speculation on

changes in currency conversion rates and

those who read the signs correctly and trade

accordingly can make a lot of money.

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On the other hand those who enter the Forex

markets unawares can experience heavy

losses.

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As always if you choose to trade currencies

do your homework and sit on the sidelines if

things do not make sense.