Exchange Rate, usually taken for currencies is the rate at which a currency is expressed in terms of another. It is used when one wants to indulge in speculation or trading in the foreign exchange market. For example, an exchange rate of U.S. dollar (U.S. $) 0.02538 by Indian Rupee (INR) means that the price of an INR is $ 0.02538. When the rate is fixed per unit of gross domestic currency, is referred to as direct quotation. Thus, the U.S. $ and INR rate would be written as U.S. $ 0.02538/INR. The rate can be expressed differently. We can say that the price of a U.S. $ 39.40 in INR, or INR 39.40/US $. When the rate is quoted as units of national currency units per unit of foreign currency, is referred to as indirect quotation. The exchange rate between the U.S. $ and Indian Rupee can be expressed in Indian Rupee per U.S. $ or U.S. $ per rupee Indian.
A cross rate is an exchange rate between the currencies of two countries that are not cited against each other, but are cited against a currency common. Currencies of many countries are not freely traded in the forex market. Therefore, not all currencies are traded against each other. Most of the coins, however, quoted against the U.S. $. The outcrossing rate of currencies that are not rated against each other can be cited, in terms of the U.S. $.
The spot rate exchange rate is the rate at which a currency can be bought or sold for immediate delivery, which is within two working days from the date of trade.
There is a definite relationship between interest rates, inflation rates and exchange rates. These relationships are called parity international conditions. The exchange rate being what market participants expect the exchange rate to spot future. This theory is the expectation of the system.
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Mar 23, 2009 Weekly Outlook
