Bid: The rate at which traders buy foreign exchange (buying rate).
Offer: The rate at which traders sell foreign exchange (selling rate)
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Spread: The difference between bid and offer rates. It is profit margin.
American Terms (Direct quote): The number of dollars per unit of foreign currency.
European Terms: The number of units of foreign currency per unit of dollar.
Cross Rate: The relationship between two nondollar currencies.
Multiple Exchange Rate system: Different exchange rates for different types of transactions.
Arbitrage: Buying and selling of foreign currencies at a profit due to price discrepancies.
Speculators: Trader’s position in foreign exchange market for earning a profit.
Hard Currency: A fully convertible currency which is relatively strong and stable in value.
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Convertible currency: A currency that can be freely traded for other currencies.
Exotic currency: Currency of a developing country which is weak, unstable and unpredictable.
Foreign Exchange Rate: Price of a currency.
Discount: It exists when forward rate is less than spot rate.
Premium: It exists when forward rate exceeds the spot rate.
Black Market: Price of currency based on supply and demand conditions instead of government controls.
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