Euro dollar trading

The euro to dollar exchange rate is a price at world demand for USA dollars equals world supply of euros. Regardless of geographical origin, a rise in world demand for euros leads to euro appreciation.

euro

The euro was introduced in 2002. It meant traditional European Union currencies like the French franc disappeared. Euroland, or the eurozone is what people call the 12 EU countries who use the euro. Which countries use it? Austria, Belgium, Finland , France, Germany, Greece, Ireland , Italy, Luxembourg, Netherlands , Spain, Portugal .

The euro was introduced on world financial markets as an accounting currency in 99 and launched as physical coins and banknotes in 02. All EU member states are eligible to join after complying with monetary requirements, and eventual use of the euro is mandatory for all new EU members. The euro is to be introduced in Slovenia on January 1, 2007, replacing the tolar.

The euro is managed and administered by the Frankfurt based European Central Bank (ECB) and the European System of Central Banks (ESCB) (composed of the central banks of its member states). As an independent central bank, the ECB has sole authority on monetary policy. The ESCB participates in printing, minting and distribution of notes and coins in all member states, and operation of the Eurozone payment systems.

dollar

The dollar is the currency of the USA. It is normally abbreviated to the dollar sign $, or alternatively US$ to distinguish it from other dollar-denominated currencies. The USA dollar is divided into 100 cents.

Adopted by the United States Congress in 1785, the currency is the most used in the world. Several countries use the USA dollar as official currency, and many others allow it to be used in de facto capacity. In 95, over US$380 billion were in circulation, of which two-thirds was outside the USA. By 2005 that figure had doubled to nearly $760 billion with an estimated half to 2 thirds being held overseas, which is an annual growth of about 6.6%.

The spot exchange rate refers to the current exchange rate. The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date.

fundamental determinants of real euro to dollar exchange rate: International real interest rate differential Relative prices in traded and non traded goods sectors , real oil price & relative fiscal position

theories underlying dollar euro exchange rate:
Law of One Price: (In competitive markets free of transportation cost barriers to trade, identical products sold in different nations must sell at same price when prices are stated in same currency.). Interest rate effects: If capital is allowed to flow freely, exchange rates become stable at a point where equality of interest is established. The dual forces of supply and demand determine euro vs. dollar exchange rates. Positive indications government policy, competitive advantages, market size) increase demand for the currency, as more and more enterprises want to invest there. Stock market: The major stock indices also have a correlation with the rates. Political factors: All exchange rates are susceptible to political instability and anticipations about new government. Economic data.

The nominal exchange rate is the rate which an organization can trade currency of one country for the currency of another.
The real exchange rate is an important concept in economics though difficult to grasp in reality. The real exchange rate is defined as rer=e(P/P*) where e is the exchange rate as number of foreign currency units per home currency unit and P is the price level of home country and P* the foreign price level.

After the introduction of the euro, its exchange rate against other currencies, especially the USA dollar, declined heavily. At its introduction in 99, the euro was traded at USD1.18 on 26th October 2000, it fell to an all time low of $0.8228 per euro. Jokes were being made at the expensse of the currency. Then it began what at the time was thought to be a recovery; by the beginning of 2001 it had risen to nearly $0.96. It declined again, although less than previously, reaching a low of $0.8344 on 6 July 2001 before commencing a steady appreciation. The two currencies reached parity on 15 July 2002, and by the end of 2002 the euro had reached $1.04 as it climbed further.

On 23 May 2003, the euro surpassed its initial ($1.18=€1.00) trading value for the first time. At the end of 2004, it reached a peak of $1.3668 per euro (€0.7316 per $) as the USA dollar fell against all major currencies. At that time, some analysts expected the dollar to continue to fall, a few even suggesting $1.60 per euro by the end of 2005, fuelled by the so called twin deficit of the US accounts. However, the dollar recovered in 2005, rising to $1.18 per euro (€0.85 per $) in July 2005 (and stable throughout the second half of 2005). The fast increase in US interest rates during 2005 had much to do with this trend.

By mid-2006, the euro had risen to $1.28.

Top 6 Most Traded Currencies
1 United States dollar USD $
2 Eurozone euro EUR €
3 Japanese yen JPY ¥
4 British pound sterling GBP £
5-6 Swiss franc CHF -
5-6 Australian dollar AUD

According to a BIS study, the most heavily traded products are:

EUR / USD - 28 per cent
USD / JPY - 17 per cent
GBP / USD (also called cable) - 14 per cent

pegged

If the value of the currency is "pegged" its value is maintained by government in question at a fixed rate relative to the other currency.

Fully fixed exchange rates
In a fixed exchange rate system, the government (or the central bank acting on its behalf) intervenes in the currency market in order to keep the exchange rate close to a fixed target.

Semi-fixed exchange rates
Currency can move inside permitted ranges of fluctuation. The exchange rate is the dominant target of economic policy-making, interest rates are set to meet the target and the exchange rate is given a specific target.

Free floating
If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand. Exchange rates for such currencies are likely to change almost constantly as quoted on financial markets, mainly by banks, around the world.

Managed floating exchange rates
Governments normally engage in managed floating if not part of a fixed exchange rate system.

advantage of fixed exchange rates
Fixed rates provide certainty for exporters and importers and, under normal circumstances, there is less speculative activity - although this depends on whether the dealers in the foreign exchange markets regard a given fixed exchange rate as appropriate and credible.

Advantage of floating exchange rates
Fluctuations in exchange rate can provide an automatic adjustment for nations with large balance of payments deficit. A second advantage of floating exchange rates is it gives government monetary authorities flexibility in determining interest rates.

Like the stock exchange, money can be made or lost on the foreign exchange market by investors and speculators buying and selling at the right times. Currencies can be traded at spot and foreign exchange options markets. The spot market represents current exchange rates, whereas options are derivatives of exchange rates.

Names for dollar in foreign nations

Dólar americano = Portugal

Amerikaanse dollar = Holland

Dólar estadounidense = Spain

Dollaro statunitense = Italy

Dollari = Finland

government_bond information