Currency Exchange Rate Essay Example | Topics and Well Written Essays - 3750 words

Currency Exchange Rate - Essay Example The exchange rate of a currency is: is fixed, i.e. constant relative to a base currency (usually the US dollar or the euro), by decision of the State issuing that currency. The rate then can only be modified by a decision of devaluation (or revaluation) of that State. A State may not, however, decide to adopt any exchange rate of its currency. If this exchange rate fixed at too high or too low, the exchange rate will be "attacked" in the foreign exchange market. If the monetary authorities are unable to cope (with their foreign exchange reserves), they will change their parity; is floating and determined for each transaction by the balance between supply and demand in the foreign exchange markets. This is an interbank market worldwide currencies, less centralized on specific places of quotation and trade, as based on computer links between banks. The exchange rate is: or a spot price, that is to say "spot" for immediate purchases and sales of foreign currency. In general, the currenc y delivery time is 2 working days during the working days and it may exceed that period if the delivery must be made during the holidays; either a course forward, that is to say "Forward", to exchange transactions at a future due date (the delivery is not made immediately). The mission is to manage risk. It is an agreement to fix today the price at which it will buy / sell currency futures.Exchange rates vary widely during the same day, these variations cannot be explained by the theory of purchasing power parity (PPP).