The international currency market Forex is a separate species of the world financial market. Forex traders is to generate profit from the purchase – sale of foreign currency. The exchange rates of all currencies that are in the market turnover are constantly changing due to changes in supply and demand, subject to strong viyaniyu any important for the human society event in the sphere of economy, politics and the environment. As a result, changes in one direction or another current value of the foreign currency, expressed, for example, in U.S. dollars. With this change in accordance with the well-known principle of the market “to buy cheaper – sell high”, traders can profit. From other sectors of the financial market Forex has a rapid response to the impact of the numerous and ever-changing external factors, accessibility to all individual and corporate traders, the extremely high turnover, which creates a warranty of liquidity in currency rates, day functioning, allowing traders to work outside normal working hours or during national holidays in their country, using working at the time the foreign markets.
Like any other market, Forex trading with its exceptionally high potential profitability is associated with a significant risk. The success of it is possible only after a certain training including an introduction to the structure and varieties of Forex, the principles of exchange rate determination, the factors affecting the price change and the degree of risk in trading, the sources of information for the consideration of these factors, methods of analysis and forecasting of the market movement, rules and tools of the trade. In preparation for the Forex trading plays an important role training using a demo account that allows you to put into practice the theoretical knowledge and acquire the necessary minimum trading experience without risk of damage to property.
Brief information about the origin and development of the foreign exchange market. Currency trading has a long history that dates back to the times of the ancient East, and during the Middle Ages, when caused international banks began to apply the exchange means of payment, valid for presentation to third parties, thereby increasing the flexibility and growth in the number of foreign exchange transactions entered into, began the final formation of the foreign exchange market .
The modern market rates for Cawthorne characterized periodically successive periods of rising volatility (frequency and magnitude of
changes) prices and their relative stability emerged in the twentieth century. Until the mid-’30s London was the leading center for foreign exchange trading, and the British pound was the currency for settlement and the creation of reserves. Since then currency trading via telex or telegram, the British pound was the common name “cable” (telegram). After the Second World War, when Britain’s economy has suffered a great loss, and the United States was the only of industrialized countries that are not economically affected by the war, the U.S. dollar, according to the Bretton Vudsskim agreement (1944) between the U.S., Britain and France became the backup currency for all the capitalist countries with a hard peg, their currencies to the U.S. dollar (the creation of the exchange rate band, which should provide the central banks of the countries through intervention or buying currency). In turn, the U.S. dollar was pegged to gold at $ 35 an ounce. The same contract was formed the International Monetary Fund (IMF), which plays an important role in providing credit support to developing and former socialist countries undertaking economic reforms. To meet these goals the IMF uses such tools as reserve tranche to enable countries to use the resources of their own membership quota at maturity, credit lines and agreements such as stand-by. Lines of credit and stand-by – agreements are standard forms of IMF loans, as opposed to compensation such as financial support, which is designed to extend financial assistance to countries with temporary problems due to the decline in exports; replenishment of reserve stocks, intended to aid in the accumulation of primary commodities resources in order to ensure price stability in specific product groups, and extended support to assist countries in financial difficulty, which is the size or duration greater than the volume of other forms of assistance.
An important milestone in the history of the financial markets of the twentieth century was the introduction in the late 70′s freely floating exchange rates, which led to the formation of Forex in its modern sense. This means that the currency may be traded by anybody and its value is a function of the current supply and demand on the market and specific intervention that require constant monitoring, no. After the introduction of a floating exchange rate there was a significant increase in the volume of trade in the Forex market. If in 1977, the daily turnover stood at its U.S. $ 5 billion, by 1987 it grew to 600 billion, and in September 1992 stood at $ 1 trillion by 2000 and stabilized at the level of about one and a half trillion dollars . This significant increase is due to the major factors discussed below. An important role is played by factors such as increased volatility of exchange rates, the efforts of the mutual influence of the economies of various countries on the value of the interest rates of central banks, which essentially depends on the exchange rate of the currency, increase competition in product markets and, in equal measure, amalgamation of different countries, technological revolution in the field of foreign exchange operations. The last expression in the creation of automated dealing systems and the transition to currency trading on the Internet. Dealing systems banks of different countries in a single network, and special matching systems are electronic brokers.
The development of computer technology, software, telecommunications, and increased experience have led to an increase in the skill level of traders and their ability to make profits and reduce risk in operations. Because of this increase in trade qualification also affected the growth of trade.
Regional reserve currency. Along with the world’s reserve currency – the U.S. dollar, currently, there are other regional and international reserve currency. In 1978. Nine countries – members of the European Union adopted a plan to create the European Monetary System, for which the control was created by the European Monetary Cooperation Fund. By 1999. these countries have drawn up a so-called eurozone, was the transition to the single European currency, the euro.
The euro was released in the form of banknotes of 5, 10, 20, 50, 100, 200 and 500 (see Fig. 1.1) and coins of 1 and 2 Euros and 50, 20,10, 5, 2 and 1 cent.
Euro is a regional reserve currency for the euro-zone countries and the Japanese yen – for South-East Asia. In certain situations, the international reserve currency is also the Swiss franc.
The role of the U.S. Federal Reserve and other central banks of the “Big Seven” in Forex. All central banks, including the U.S. Federal Reserve (Fed) have an impact on the foreign exchange market through changes in interest rates and foreign exchange operations (intervention purchases and currency).
Fig. 1.1. Euro banknotes.
Of the most significant foreign exchange for forex trading is an agreement to repurchase (repurchase agreements), providing for the re-sale of the same system previously purchased by customers currencies at the same price at the agreed time in the future (usually within 15 days) and with a certain interest rate . The volume of transactions on such an agreement corresponds to the amount of temporary injection of reserves into the banking system. The impact on the foreign exchange market is done in order to weaken its currency. Repurchase agreement may impose obligations on either the client or the bank (Fed).
Negotiated contracts for the sale of (matched sale-purchase agreements) are opposite to repurchase agreements. In carrying out the agreed contract of sale, the bank or the Fed sells a currency with a view to its immediate delivery dealer or a foreign central bank, agreeing to buy the currency back at the same price at the agreed time in the future (usually within 7 days). This agreement aims to reset the temporary reserves. The volume of transactions on such an agreement corresponds to the amount of temporary relief provisions. Effect on the market intended for the fact that, to enhance its currency.
Among the foreign currency transactions is placing money in the other central banks or mezhdunarodnh funds. In addition, the Fed since 1962., Has signed a number of agreements with other central banks on currency exchange. For example, to help the allies in the war to liberate Kuwait from Iraqi occupation in 1991: 1990. Bundesbank and the Bank of Japan placed the money in the Fed. Through other central banks made U.S. contributions to the World Bank and the United Nations etc..
Intervention in the foreign exchange market by the Treasury and the Fed are aimed at ensuring orderly market or exchange rate management. They are not intended to affect the state’s financial reserves.
There are two types of currency interventions: naked (naked intervention) and sterile (sterilized).
Naked, or unsterilized intervention is associated exclusively with foreign exchange trading. Everything that happens in this case – it is the purchase or sale of the Federal System of dollars for foreign currency. In addition to the impact on the foreign exchange market, while there is a change in financial situation due to the inflow or outflow of money. A noticeable change in the financial flows makes it necessary to adjust the size of the dividend payment, to change the prices and to make other amendments at all levels of the economy. Therefore, the effect of naked foreign exchange intervention is long-lasting.
Sterilized intervention is neutral in terms of its impact on cash flow. Since not many central banks have
they want their intervention in the currency markets tially all aspects of the economy, sterilized intervention is preferable. The same applies to the Federal Reserve. Sterilized intervention involves an additional measure in the original currency of the transaction. This measure is to sell government securities, compensating increase in provisions due to the intervention. It is easier to understand if you imagine that the central bank intends to finance the transaction currency by selling a certain amount of government securities. Since sterile intervention affects only the level of supply and demand separate currency, its effect is short-term or medium-term.