Follow Us

Main Types of Trades between the Banks

Spot transactions are single outright transactions that involve the exchange of two currencies at a rate agreed to on the date of the contract for value or delivery within typically two business days Example: Bank A agrees to sell USD 150 to bank B against GBP 100.

Trades_between_the_banks_small

Read more: Main Types of Trades between the Banks

Modern Monetary Theories on Short-Term Exchange Rate Volatility

The modern monetary theories on short-term exchange rate volatility take into consideration the short-term capital markets' role and the long-term impact of the commodity markets on foreign exchange. These theories hold that the divergence between the exchange rate and the purchasing power parity is due to the supply and demand for financial assets and the international capability.

Read more: Modern Monetary Theories on Short-Term Exchange Rate Volatility

Economics Theories: Theory of Elasticities

The theory of elasticities holds that the exchange rate is simply the price of foreign exchange that maintains the balance of payments in equilibrium. For instance, if the imports of country A are strong, then the trade balance is weak.

Read more: Economics Theories: Theory of Elasticities

Economic Theories: Purchasing Power Parity

Purchasing power parity states that the price of a good in one country should equal the price of the same good in another country, exchanged at the current rate—the law of one price.

Read more: Economic Theories: Purchasing Power Parity

The Central Banks of the G-7 Countries

In the wake of World War II, both Germany and Japan were helped to develop new financial systems. Both countries created central banks that were fundamentally similar to the Federal Reserve of USA. Along the line, their scope was customized to their domestic needs and they diverged from their model.

Read more: The Central Banks of the G-7 Countries