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THE DETERMINANTS OF EXCHANGE RATE and CURRENCY

Students:

• Akimbekova K.
• Ewtayaeva A.
• Galymzhan D.
• Duzelbay A.
• Zhakssylykov O.

 Fixed Exchange Rates

There are two ways the price of a currency can be determined against another. A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange rate. A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen or a basket of currencies). In order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged. The central bank can also adjust the official exchange rate when necessary.

Introduction & Background of Study

• Currency and exchange rate are different
• Exchange rate can be flexible or fixed

Types of Currency

• Fiat Currency
• Asset Backed Currency
• Commodity Backed Currency
• Digital Currency

Exchange Rate

• An exchange rate is the rate at which one currency can be exchanged for another. In other words, it is the value of another country's currency compared to that of your own.

two more details....

hard currency:

a currency that is used for storing value (saved by other countries) and easily traded for any other currency

("safe haven" or strong currency: long-term confidence in its PPP, e.g. USD, YEN, Euro, British pound)

(soft currency: no confidence in economic/political stability)

convertible currency:

globally and easily traded anywhere, liquid stored of value

(only major hard currencies with high int´l demand)

In reality, no currency is wholly fixed or floating. In a fixed regime, market pressures can also influence changes in the exchange rate.

In a floating regime, the central bank may also intervene when it is necessary to ensure stability and to avoid inflation. However, it is less often that the central bank of a floating regime will interfere.

non-convertible currencies: Cuban peso & North Korean won

(only on the black market can be exchanged, no official XRT

Thank You!

Managed currency

Currency

A managed currency is an exchange rate that is basically floating in the foreign exchange markets but is subject to intervention from time to time by the monetary authorities, in order to resist fluctuations that they consider to be undesirable.

• Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and exchange for goods and services, currency is the basis for trade.

Basic Terms

• If you are traveling to another country, you need to "buy" the local currency. Just like the price of any asset, the exchange rate is the price at which you can buy that currency.
• Nowadays there are 3 main systems used to determine exchange currency rate:

• Foreign Currency-money of other countries
• Foreign Exchange Market- place of exchanging currencies
• exchange rate -the price at which one currency is exchanged for another

Currency code — rather short sequence of figures or letters used for submission of the name of monetary unit and its identification in various systems of information transfer. Currency codes are grouped in classifications of currencies which, as a rule, are universal, interstate, national or industry standards. Release and the address of currency as the means, first of all, providing mutual exchange of results of activities creates the system of the public relations called by the currency relations. Separate elements of the currency relations arose in Ancient Greece and Ancient Rome. In the next centuries there were medieval "bill fairs" in Lyon, Antwerp and other shopping centers of Western Europe where calculations for bills of exchange were made. The system of international settlements through banks began to develop in an era of feudalism and formation of capitalism. In process of growth of productive forces and relations of production, deepenings of the international job specialization, emergence of the world market, deepening and expansion of world economic communications developed the currency relations.

Monetarist policies — set of economic, legal and organizational actions in the sphere of currency circulation and the currency relations performed by the states, Central Banks and the international financial bodies.

Currency restrictions — restrictions for residents or nonresidents on ownership and making of transactions with currency values are set.

Currency monopoly — an exclusive right of the state on making of transactions with the currency values.

appreciation - a rise in exchange rate

depreciation - a fall in the exchange rate

 Floating Exchange Rates

Unlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand. A floating rate is often termed "self-correcting," as any differences in supply and demand will automatically be corrected in the market. Look at this simplified model: if demand for a currency is low, its value will decrease, thus making imported goods more expensive and stimulating demand for local goods and services. This in turn will generate more jobs, causing an auto-correction in the market. A floating exchange rate is constantly changing.