A currency quote is the price of a monetary unit of a country, which is expressed in monetary units of other countries. Currency exchange is characterized by such an indicator as convertibility. The state regulates the degree of convertibility of currencies.
What is convertibility
This is the property of a currency to be exchanged without restrictions for monetary units of other countries and back on currency exchanges.
In order for the currency to be called freely convertible, the implementation of foreign exchange transactions is not limited in this country. A currency is called non-convertible if legislation is in place that restricts almost all transactions with this currency. A currency is called partially convertible if the country restricts only a small part of exchange operations. The higher the economic stability, the higher the freedom of conversion. Understanding the essence of a currency quote will certainly lead to success in the banking sector.
The exchange rate is based on currency parity. But the current exchange rates almost never correspond to their parity. Due to the peculiarities of foreign economic relations and international trade, the ratio of supply and demand does not coincide, and there is no equilibrium. If the country has a passive balance of payments, then the quotes of foreign currencies grow, and the national currency falls. Well, if the balance of payments is active, then the opposite phenomenon is observed. Therefore, in many countries there are two rates of the national currency: fixed and free. According to the official parity, transactions are made in national central banks, as well as in various financial and currency structures. Transactions between companies and individuals are carried out at a free rate.
The exchange rate is fixed based on gold parity (gold reserves) or on the basis of international agreements. When using gold parity (classical method), the size of the exchange rate is set in proportion to the gold content.
One way or another, in each country, the government regulates the official exchange rate, this data is open and publicly available. In the Russian Federation, the Central Bank sets the official ruble exchange rate. This is done in order to calculate government expenditures and revenues (budget deficit and surplus), as well as in other types of settlement and payment relations between the state, organizations and citizens, including accounting and taxation transactions.
Currency quotation - fixing national money in the currency of another country. There is a direct and indirect quotation.
- This is the value of the monetary unit of another country, which has developed in the domestic market. It shows how much the meter's currency is needed to equate to the quoted currency.
- also called indirect, shows reciprocal numbers, i.e. how much the quoted currency is needed to equate to one unit of the meter's currency.
One monetary currency can be expressed in relation to the second in a third currency. In this case, the concept of cross-rate is introduced. The need for a cross rate arises when the total exchange of currencies between two countries is not high enough, and, therefore, direct quotes are not formed or they are not reliable. But even if direct quotes are reliable, the cross rate may give a different result, a different rate value.
There are two more types of courses: the seller and the buyer. Buyer's rate - the bank buys, and the seller's rate - the bank sells.
Forms of currency quotes
Fixed. The official relationship between the currencies of different countries, which is determined by currency parities and legislation. Fixing the national currency in US dollars or gold, as well as reducing the amplitude of market fluctuations in exchange rates within the required limits.
Floating. Freely fluctuating exchange rate, in which there is a system of regulation. For example: the European Union - the countries that entered it have agreed on mutual exchange rate fluctuations. This is done in order to reduce the bad impact of monetary fluctuations on the economy.
Fluctuating It can freely change depending on supply and demand, based on the market mechanism.
