1. What is foreign exchange?

Foreign exchange refers to the foreign currency held by a country and the means of payment expressed in foreign currency for international settlement.

 

The concept of foreign exchange can be divided into static and dynamic.

 

1. Static concept

 

The static concept of foreign exchange refers to the means of payment expressed in foreign currency that can be used for international settlement. This means of payment includes credit instruments and securities expressed in foreign currency, such as: bank deposits, commercial bills, bank drafts, bank checks, long-term and short-term government securities, etc.

 

2. Dynamic concept

 

The dynamic concept of foreign exchange refers to a specialized business activity in which one country's currency pair is exchanged for another country's currency to repay international creditor's rights and debt relations. It is the abbreviation of international exchange.

 

Here, it needs to be pointed out that the currency of some countries cannot be freely converted in the international market, so it can only be regarded as foreign currency instead of foreign exchange abroad.

 

2. What is the exchange rate?

Exchange rate, also known as exchange rate, refers to the price of one country's currency expressed in another country's currency, or the comparison between the two currencies. Usually expressed as the exchange rate between two currencies. For example: USD/CNY=1/7.2456, that is, the exchange rate between the US dollar and RMB is 1:7.2456. It can also be said that 1 US dollar needs to be purchased with 7.2456 RMB.

 

3. Several characteristics of the exchange rate

1. Displayed in five digits.

 

Euro EUR 0.9705

 

Japanese Yen JPY 119.95

 

GBP 1.5237

 

Swiss franc CHF 1.5003

 

2. The minimum change unit is one point, which is the change unit of the last digit.

 

Euro EUR 0.0001

 

Japanese yen JPY 0.01

 

GBP 0.0001

 

CHF 0.0001

 

3. The ups and downs are described by "points"

 

According to market practice, the price of the foreign exchange rate is usually composed of five significant figures, counting from the right to the left, the first is called "X point", which is the smallest unit that constitutes the exchange rate change; the second is called "X ten points", and so on.

 

For example: 1 Euro = 1.1011 US dollars; 1 US dollar = 120.55 yen

 

EUR/USD moves from 1.1010 to 1.1015, says EUR/USD up 5 pips

 

USD/JPY changed from 120.50 to 120.00, said USD/JPY fell 50 pips.

 

4. The pricing method of the exchange rate

1. Direct pricing method

 

The direct quotation method is a method of expressing the exchange rate of a certain unit of foreign currency in the domestic currency. Generally, it is how much 1 unit or 100 units of foreign currency can be converted into domestic currency. At present, most countries in the world adopt the direct pricing method, and my country also adopts the direct pricing method. For example, the US dollar to RMB is 1:6.4906.

 

2. Indirect pricing method

 

The indirect pricing method is a method of expressing the exchange rate of a certain unit of domestic currency in foreign currency. Generally, it is how much foreign currency can be converted into 1 unit or 100 units of domestic currency. At present, only a few countries in the world use the indirect pricing method, such as the British pound, the euro, the Australian dollar, the New Zealand dollar, and the Irish pound. For example, for the United Kingdom, the exchange rate of the British pound to the RMB is 1:9.4471, which is the indirect pricing method.

 

5. What are the main products and symbols?

According to international practice, three English letters are usually used to indicate the name or code of a currency.

 

US dollar: USD

 

British pound: GBP

 

Euro: EUR

 

Japanese Yen: JPY

 

Canadian Dollar: CAD

 

Swiss franc: CHF

 

Australian Dollar: AUD

 

New Zealand Dollar: NZD

 

6. Who are the market participants?

Participants in the foreign exchange market mainly include central banks, commercial banks, non-bank financial institutions, broker companies, self-employed traders and large multinational companies. They trade frequently, and the transaction amount is huge, each transaction is several million dollars, or even more than tens of millions of dollars. Generally speaking, there are three motivations for their participation:

 

1) Through trade and investment, international companies convert foreign profits into domestic currency.

 

2) For hedging, corporate finance ministers and fund managers will also use the foreign exchange market to reduce the risk of price fluctuations in futures transactions.

 

3) Profit from speculation.

 

7. What are the major foreign exchange markets in the world?

At present, there are more than 30 major foreign exchange markets in the world, which are located in different countries and regions on all continents of the world. Among them, the most important ones are London, Frankfurt, Zurich and Paris in Europe, New York and Los Angeles in America, Sydney in Australia, Tokyo, Singapore and Hong Kong in Asia.

 

8. Trading hours of major foreign exchange markets

The foreign exchange market trades 24 hours a day. The business hours of various foreign exchange markets in the world alternate with each other, forming a successive cycle of operations.