The term “exchange rate” is believed to be familiar in the course of foreign exchange sales, and we can often see and hear it in various foreign exchange information and reports。
The exchange rate, also known as the “exchange market” or “exchange rate”, is the ratio between the two currencies and represents the price of the other currency in one currency. In foreign exchange markets, uniform exchange-rate provisions between currencies are essential, as the names and values of each country and currency vary. Combined with the liquidity of international markets, foreign exchange speculation has become a very popular type of investment in global financial markets, so that fixed exchange rates are justified。
What are the methods used to price foreign exchange rates? The most common international methods are: direct, indirect and, in addition, united states dollar and cross-bid。
1 direct pricing
The direct pricing method is also referred to as the bid payable method. It is a method of measuring the value of a number of local currencies by using a certain unit (e. G. 1,100,1000) in foreign currency, i. E., using foreign currency as a common commodity to express its price. Currently, most countries use direct pricing。
In the direct pricing method, if the amount of a unit's foreign currency is increased to the national currency, it represents an appreciation of the foreign currency, a devaluation of the currency or an increase in the foreign exchange rate and a decline in the exchange rate; if the amount of the foreign currency is reduced in a given unit, it represents a depreciation of the foreign currency, a appreciation of the currency, or a decline in the exchange rate and an increase in the exchange rate。
2 indirect bid method
Indirect pricing is also referred to as bid receivable. It is based on the national currency of a given unit (1 or 100) to calculate the amount of foreign currency to be collected. In other words, the currency is treated as a normal commodity and the price of the currency is expressed in the amount of the foreign currency. In indirect pricing, the amount of the national currency is fixed, while the amount of the foreign currency decreases as the exchange rate rises or falls, such as an increase in the amount of the foreign currency, indicating an appreciation of the currency, a devaluation of the foreign currency, or an increase in the exchange rate and a decline in the foreign currency exchange rate. Currently, the main countries using the bid-in-aid system are the united states and the united kingdom. It's also called the american price tag. In the united states, however, the price of the united states dollar to the pound sterling is subject to direct pricing. Any foreign exchange dealer must bear these special circumstances in mind. For example, you have a new york or london foreign exchange listing, and it's about to come to mind that it uses indirect pricing, otherwise there will be major errors in transactions。
$3 bid
At present, the united states dollar remains the principal international reserve currency and means of payment for export and import trade worldwide, with foreign exchange transactions traded mainly in united states dollars as intermediaries. As a result, most foreign exchange transactions between the world's major banks are quoted using the united states dollar exchange rate, which is the united states dollar-denominated method。
4 cross-bidding
Cross-bidding is the method by which prices are priced simultaneously among multiple currencies。
We know that international trade transactions and foreign exchange transactions in foreign exchange markets are often multi-directional and that, therefore, traders must be aware of the relative value of the currency to a given foreign currency, as well as of the relative value of the various foreign currencies. For example, in transit trade between france and the united states, a hong kong company must know the exchange rate of the hong kong dollar against the united states dollar and the rate of exchange of the united states dollar against the french franc. Thus, the world's financial centres use this cross-price method in addition to the three methods described above。
Cross-biding is characterized by a simultaneous understanding of the ratio between multiple currencies. From the above table, for example, we can see the exchange rates of the mark to the yen, the mark to the franc, the mark to the pound, the pound to the yen, and the yen to the franc, among others。
