Currency pairs

FOREX market is buying of one currency, and selling another one simultaneously. Forex is a large world?s financial market, which is many times bigger than stock market. Forex daily trading volume is over USD 3 billion. Forex is an off-the-board market where the operations are conducted through brokers. The trading continues 24 hours a day 5 days a week. With the help of brokers, it is possible to trade almost all currencies. Currencies, as a rule, are denoted by three letters, the two letters from the beginning denote the country, and the third letter ? the name of the currency. The most liquid are considered to be the US dollar (USD), the euro (EUR), the Japanese yen (JPY), the British pound (GBP) and the Swiss frank (CHF).

A price of one currency versus another is constantly changing (growing or decreasing). For example, if we say that the US dollar is decreasing, it is not clear, as the US dollar can rise versus the Australian dollar and fall against the euro. Currencies are always trading in pairs. As currencies are quoting one versus another, the names of the currencies can be divided with a slash (/) and are written so: EUR/USD.

Currency pairs correspond to ratio of currencies? prices, making up the pair. For example, the price of EUR/USD pair shows how much USD you can buy for 1 EUR. The first currency in the pair is a base currency, and the second- the currency of the quoting- or the quote currency. The euro is a base currency versus other major world?s currencies. There are the following base currency pairs:

There are so-called pairs majors, for which around 75% of all market operations at Forex are held: EURUSD, GBPUSD, USDCHF, and USDJPY. As we see, the US dollar is represented in all currency pairs, thus, if the currency pair contains the US dollar, this pair is considered a major currency pair. Pairs which do not comprise the US dollar are called cross- currency pairs, or cross- rates. The more actively trading are the following cross- rates.

Thus, let us discuss the most exciting events of the currency pairs? history.

One of the most interesting movements of Forex market history showed the British pound in autumn of 1992, on the 16th of September, to be more precise. Later on, this day was called ?Black Wednesday?, when an extreme decrease of the British currency was fixed. It manifested itself more dramatically on the currency pairs GBP/DEM (the pound/the Deutschemark) and on GBP/USD (the pound/ the US dollar).

The falling of the British pound against the US dollar in the period form November to December 1992 amounted to 25% (from 2.01 to 1.51 GBP/USD).

The general reasons for this ?sterling crisis? are the participation of the Great Britain in the European currency system with fixed currency corridors; the recently passed parliamentary elections; the lowering of industrial output; the Bank of England effort to hold the parity rate in the Deutschemark, as well as the dramatic outflow of the investors. At the same time, because of the slant in profitability the German currency market became more attractive than the English one. All in all, the speculators were rushing to sell the pounds for the Deutschemarks and for the US dollars. The consequences of the currency crisis were as follows: a sharp increase of the interest rate from 10% to 15%, the British government had to accept the devaluation of the pound, and to secede the European Monetary System. In the result, the pound returned to the floating exchange rate.

Another intriguing currency pair is the yen - the US dollar (JPY/USD). The dollar- yen currency pair is on the third place among the most trading currency pairs after the euro/ the US dollar and the pound/ the US dollar. It is most actively trading at sessions in Asia. The movements of this pair are usually smooth; the USD/JPY pair quickly reacts to the risk peaking of the financial markets. From the mid 80ies the yen ratings started to grow actively versus the US dollar. In early 90ies a lively economic situation turned into a standstill of the Japanese economy, the unemployment increased; the earnings and wages slided as well as the standards of living of the population in the country.

And from the beginning of 1991, this caused bankruptcies of numerous financial organizations in Japan. As a result, the quotings at Tokyo stock exchange collapsed, the yen devaluation happened, thereafter a new wave of bankruptcies among manufacturing companies rose. And in 1995, a historical minimum of the JPY/USD pair was recorded -79.80.

The started in 1997-1998 Asian crisis led to the yen crush. It resulted in the downfalling of the yen- US dollar pair from 115 yens per one US dollar to 150.

The global economic crisis touched almost all fields of human activities. It didn?t skip Forex currency market. Though Forex market participants (central banks, commercial banks, investment banks, brokers and dealers, pension funds, insurance companies and transnational companies) are in a difficult position, Forex market itself continues to function successfully, it is stable and profitable, as never before.

The financial crisis led to drastic changes of the world?s currencies values. During the crisis, the yen strengthened most of all against all other currencies. Neither the US dollar, nor the euro, but the yen proved the most reliable currency instrument for the traders. One of the reasons for such strengthening can be that the traders needed to find a shelter in the currencies? chaos. Other specialists explained the uprise of the yen rates by refusing from carry trade deals. Thus, bellow there are the currency changes of the major yen pairs.

From the table we see, that the yen strengthened versus the US dollar more than by 18%, against the euro- by 27.5% and against the pound- by 33%. Among the most strengthened currencies the US dollar took the 4th place. Strange as it may seem, the US dollar remains the most reliable currency in the world, irrespective of the advancing recession in the USA, the fall of the country?s financial system, the spend of $750 billion on Paulson?s plan of the economic recovery and the constantly growing foreign dept amounting to dozens of billion USD. The investors still continue to rely on it. Below, there is a table of the currency rates changes versus the Greenback.

From the above data it is seen, that the US dollar strengthened against the euro by 8.3% and versus the pound by 19.2%. Against the yen and the frank a fall was fixed. In the first case, by 18.5%, the second- by 2.5%.

The euro in the rating of the strengthened currencies took the 12th position. The negative factors were: the contraction of the GDP and the production of the largest eurozone countries (Germany, France, and Italy), the fears about the recession in the EU, the reports about the stagnation of production, inflation and huge foreign debts of the EU-members, in particular Portugal, Ireland, Spain and Greece. As for the latter, there is a threat of its separation from the eurozone. The fall of the euro was influenced by exiting of the investors from this currency to the currencies- shelters (the US dollar and the yen). The table of the currency rates change versus the euro is below:

During the financial crisis the euro weakened against the following major currencies: the US dollar- by 8.3%, the yen- by 27.5%, the franc-by 8.8% and the Aussie- by 7.7%. From all stated above, we can say that Forex market, unlike stock market and other business activities, after the global economic crisis did not suffer, on the contrary, it only profited.

Many currency market participants gained, their yield during this period of the crisis came out to be fabulous. In the situation, many people see the exit from the crisis exactly in Forex. As they often say in China: a crisis involves not only perturbations in the economy and social strain, but it is also a favourable time for investments and for numerous problems solving.