Foreign Exchange Rate

Countries deals with each other in two main ways, which are: trade and investment. Trade consist as export and import of goods and services and consequently trade balance is an important international .... variable. On the other hand, investment involves borrowing and lending of money and the foreign ownership of property a stock within a country. Here exchange rate is the other international macroeconomic variable.

Foreign exchange definition

A foreign exchange rate is the price at which one currency (e.g. USD) can be exchanged for another currency (e.g. GBP)

Normally foreign exchange rates are listed in two ways, namely:

1.       the direct quote 'domestic currency units per unit of foreign currency'

2.       the indirect quote 'foreign currency units per unit of domestic currency'

Example:

Let us say that the pound sterling is the domestic currency and approximately £0.547 was required to buy one USD. Then we shall write:

1.       Direct quote: £0.547/$1

2.       Indirect quote:$1.828/£1

Regulatory Bodies

Regulation in a financial system consists as a means to control existing or possible inefficiencies or market failures within the system. The government has set regulations by appointing regulatory bodies or agencies that are responsible for defining the objectives of the regulatory framework, identifying specific activities required to be performed and determining the medium of implementing the regulatory activities. The regulatory bodies are generally independent and accountable for activities in the financial system, and are considered effective with regards to the financial system.

United Nations (UN)

The United Nation is an international organisation founded in 1945 after the second world war by 51 countries committed to maintain international peace and security, developing friendly relations among nations and promoting social progress, better living standards and human rights.

The World Bank

The World Bank was originally  founded in 1944 to help in the reconstruction of post-war Europe: its current purpose is to assist the economic developments of nations by making loans where private capital is not available. Its stated goals are the reduction of poverty in developing countries, the protection of the environment and promotion of both private sector and human resource development. The world Bank is currently considered a specialised agency of the United Nations and consist of 177 member states.

International Monetary Fund (IMF)

The IMF also as the 'Fund' was conceived at a United Nation Conference convened in Bretton Wood, New Hampshire, U in July 1944. The IMF is an organisation of 188 member countries that works to foster global monetary cooperation secure financial stability, facilitate international trade, promote high employment and sustainable economic growth and reduce poverty around the world.
At the Bretton Woods conference of 1944, the goal was ambitious and largely successful to create a cooperative and institutional framework for the global economy that would facilitate international trade and balanced global economic stability and growth. At the conference, articles of agreement for the IMF and the International Bank for Reconstruction and Development (IBRD) later Known as the world Bank, were drafted and adopted.

World Trade Organisations (WTO)

WTO was created on 1 January 1995 which marked the biggest reform of international trade since after the second world war. WTO is simply a place where member states go, to try to sort out the trade problems they face with each other. Negotiations take place. The bulk of the WTO's current work comes from the 1986 - 1994 negotiations called the Urugray Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT).

International bond market (made up of 3 markets)

1.       The domestic bond market

A domestic bond can be defined as a bond issued in the currency of the country of issue by a domestic entity. eg. a USD Treasury bond issued by the US treasury.

2.       The foreign bond market

A foreign bond is a bond issued in the domestic currency of the country but by a foreign company. E.g. a British company issuing a dollar bond in the US market.

3.       The Eurobond market

A Eurobond is a bond that is sold by a government institution or company in a currency that is different from the country where the bond is issued, E.g. A dollar bond sold in London is a dollar Eurobond and a sterling bond sold in Germany is called a sterling Eurobond.