Introduction

Some terms you may encounter in literature.

Currency exchange rate - a price for one country’s currency point evaluated in another country’s currency in purchase or sell transactions. Such price might be set based on demand and supply ratio for a certain currency in the conditions of a free market or this price can be strictly regulated by a decision of a Government or its main financial institution, generally Central Bank.

Direct quotations. Direct quotation is a quotation that indicates the amount of a national currency within a foreign currency point. In the majority of countries exchange rates of foreign currency are evaluated in national currency. It is a so-called direct quotations system.

Indirect quotations

Great Britain is one of the few countries that use indirect quotations system. Indirect (reverse) quotation is a quotation that indicates the amount of US Dollars within a point of a national currency. Also in reverse quotation the exchange rate of a new EURO currency is indicated.

GBP/USD

EUR/USD

Cross-exchange rates. It is a correlation of two currencies. It is ensued by these two currencies exchange rate against the exchange rate of the third currency. In transactions at the world market cross-exchange rates with the US Dollar are often used as the US Dollar is not only the main reserve currency, but also a transaction currency in the majority of currency transactions.

Spot-exchange rate. Price for one country’s currency evaluated in another country’s currency and set to the moment of deal arrangement on conditions that contra-agent banks exchange currency on the next work-day after the deal arrangement. Spot-exchange rate indicates the level of national currency evaluation to the moment of transaction outside a country in question.

FOREX (Foreign Exchange) - international exchange. Acronyms are FX, FRX.

Major currency (majors)

EUR = ECU - international European currency -Euro(Ecu)

USD - US Dollar

GBP = STG - Pound of Sterling (cable)

CHF = SWF - Swiss Frank

JPY = YEN - Japanese Yen

AUD - Australian Dollar

NZD - New-Zeeland Dollar, kiwi

CAD - Canadian Dollar

Currency quotation looks as follows:

USD/CHF = 1,0050/53

It means a trader can purchase Dollars for Swiss Franks by the exchange rate of 1,0053, and sell Dollar for Swiss Franks by the exchange rate of 1,0050.

1,0050 -bid; 1,0053 - ask.

Point – is the smallest acceptable change in price or Price Interest Points (pips) - 1,0053 - 3 pips.

Spread – the difference between purchase price and sell price: 1,0053 - 1,0050 = 3 pts points.

Hedge – insurance of the currency risks.

FOREX market open hours (24 hours a day)

Winter time, Kiev

American and Asian sessions are the most aggressive, and the biggest amounts of transactions are performed in the European session. New-Zeeland and Australian sessions are considered to be the calmest.