The International Currency Market
Everyone who has been using money at one time or another has come up against currencies other than their own. If you're American (US) then it will be the almighty dollar. The British have the Pound sterling, the Japanese have the Yen and the Chinese the RMB. Some years ago, the proud German Mark, the French Franc and other somewhat less important currencies merged to become the new Euro.
Whether one likes it or not, and many don't, the US dollar is still the measure against which other currencies are valued. Depending on a number of factors, such as the perceived availability or scarcity of oil, the availability of gold and other commodities as well as the employment figures, the value of the dollar goes up and down.
In the first few months of 2011, America and some of the Western nations have been engaged in a couple of conflicts. In specific, the Libyan crisis has resulted in the world oil price sitting at all a near all-time high. This means that many of the major commodities are being affected. The ability to trade effectively depends on the ability to move goods from where they are grown or manufactured to where they are purchased by the end user.
In some countries, like in Africa and Romania horse-drawn carriages are still used. This might be okay to deliver commodities within a few kilometers, but do not do anything to get the goods to a real market. Use of railways can only be effective to a minor extent. Railways are useful for carrying goods great distances reasonably cheaply. This is provided that there is no real emergency to the arrival of the gross at that market.
There is a Railway connection that effectively delivers goods from Rotterdam on one side to Vladivostok in Russia, or to Xindao in China at the other end. In between goods can be delivered to or picked up from to Mongolia, Kazakhstan, Uzbekistan, and Ukraine. The Rotterdam goods travel through Germany, Poland, Belarus before they get to Russia. The trouble is that it is a slow and costly process.
All of these countries mentioned above have different currencies and the sale of goods from, say, Japan to Kazakhstan involves the paying tariffs along the way. For this reason the amount is usually determined in US dollars.
The shifting of goods by sea is certainly rated in US dollars, so the stabilization of one's own currency against the USD is crucial to enable you to determine the value of cost involved in getting your goods to market.
Currencies fluctuate, sometimes dramatically. The international conflict tends to drive the currencies one way or another. A small number of people with huge resources can likewise affect the currency market.
That's the scene for the smaller the trader, the less influence he has the greater the chance that he is to lose on some of the swings and roundabouts as he has no prior knowledge and his trades have little effect on the price at the moment. Some big traders in New York or London can affect the price by just one trade.
The value of the euro is under threat because some of its members have not behaved acceptably. There is a real fear that the propping up of these currencies mildly bigger, more stable economies is not going to go on for very long. So watch this space to see if we will once again be trading in the Deutschmark and French Franc.
Questions and Answers
SDRs are defined in terms of a basket of major currencies used in international trade and finance. At present, the currencies in the basket are the euro, the pound sterling, the Japanese yen and the United States dollar. Before the introduction of the euro in 1999, the Deutsche mark and the French franc were included in the basket.
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Created by David Lambert, the CCI was first used as an indicator for determining reversal points in the Commodities Markets. It was then discovered to be very useful in the share and forex markets. It is based on the theory that all activities move under the influence of cycles. The Maxima (+100) and the Minima (-100) occurring at regular intervals. The CCI measures the speed of price fluxuations as determined by oscillators.
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