Forex trading at the borders of nominal value of the national currency
The exchange rate of the national currency is a topic close to everyone who has experienced an economic crisis or default. At a time of rapidly changing frightening figures on the exchange point board, many of us criticized the Central Bank for its "inept" policy of managing the value of the national currency.
After reading the article, you will be able to quickly and easily calculate the real exchange rate of the national currency or determine it for any pair of Forex market.
In the twenty-first century, the type of course is determined by the recommendations of the International Monetary Fund to local central banks. The methodology has 10 algorithms for determining the value of money, divided into three main modes:
In the first two cases, the national currency depends entirely on the actions of the Central Bank, which "sets the rules of the game," linking the rate to a fixed basket, usually consisting of the euro and the US dollar.
If the country 's money is freely convertible, its value is determined by the laws of supply and demand in Forex 's international currency market, where it is compared to the US dollar. The US currency is chosen as the basic measure of the value of any other national currency by the decision of the Jamaica G7 Conference held in 1976.
The floating regime means that every participant with access to the interbank market can buy or sell such currency in any amount 24 hours a day, except for weekends, but this does not remove the influence of the Central Bank.
In addition to these external factors of regulation of commodity flow, the main bank of any country is obliged to stimulate the domestic economy, combat inflation, provide affordable loans, etc. The set of these measures is called monetary policy (DCT), which defines a nominal rate often far from real valuation.
The nominal exchange rate of the national currency is the exchange rate of the Forex market for the floating regime of currencies of free conversion or its value on the local currency exchange, limited by some conditional price corridor or determined in discrete trading mode.
The real exchange rate of the national currency is determined by its purchasing power abroad. Theoretically, it is calculated through a sample of identical goods. It is enough to estimate how much some conditional consumer basket costs in the Motherland, and to compare the amount spent in another country. By comparing the results in foreign and local currency, we will get a real rate that does not always coincide with the nominal value.
A list of exchange rates with fixed and transitional regimes is available in the Russian-language version of Wikipedia, where a separate article has been published on this topic. Forex brokers 'list of instruments does not contain many of its national currencies due to low liquidity and lack of free exchange rate conversion.
By checking the list of fixed and transition rates with available pairs from the broker, try to choose the national currencies of developed countries with a stable economy.