What Are Rates?
An exchange rate is the price at which the currency or region of one country can be converted to the currency of another country or region. Accordingly, the foreign exchange rate is calculated by the amount of local currency per foreign currency. When the foreign currency rate decreases, it means that the domestic currency increases and the foreign currency decreases, conversely, the foreign currency rate increases, the domestic currency decreases and the foreign currency increases.
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Currently, foreign exchange rates are listed by market, which means the quoted currency is in the front, the currency in the back.
For example, the exchange rate between VND and USD will be officially listed as USD/VND which means how many VND units can be converted into one USD unit.
Types of Rates
?There are many ways to classify foreign exchange rates accordingly, usually foreign exchange rates will be divided based on the following criteria: By transaction activity, by market market, by term, and by the relationship between currencies.
According to transaction activity:
– Purchase rate: When a subject price is quoted, they are willing to pay to buy a unit of the same price.– Selling rate: is the price at which subjects are willing to exchange a unit of currency. quoted in exchange for the currency of the price. In addition to the buying and selling rates, there is also the interbank rate with the participation of commercial banks together.
According to the listed market price:
Official foreign exchange rate
: Is the foreign currency rate announced by the monetary authority (central bank) applicable at a certain time.– Market rate: Formed on the basis of market supply and demand. For countries maintaining a fixed exchange rate regime, the official exchange rate and the market exist in parallel. In which, the official exchange rate is the basis for the exchange rate listed at commercial banks and fluctuates within the allowable margin, while the free market rate is not controlled by this bank.
Depending on the time and period, there are country-by-country rate adjustments, such as the official rate which can be completely independent of the rate but there are times when the market rate is taken as a reference.
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– Exchange rate in circulation: This type of exchange rate is applicable to foreign currency purchase contracts executed 2 working days from the transaction start date.– Futures rate: This type of exchange rate is applicable to Contracts to buy foreign currency are entered into today but the transaction is re-executed at a certain time in the future. If the market rate fluctuates, at maturity, the exercised rate will remain the same according to the original signed contract.
According to the relationship between currencies
This is considered the most important and standard classification, applicable to the purposes of studying competitiveness in trade between countries. Exchange rates between currencies are not the same, so in the process of understanding the competitiveness between goods and services, researchers often use exchange rate indexes to easily compare with the purpose of recording. same initial time. Rate indexes include:
Bilateral Name Exchange Rate Index: Shows the change in the purchasing power of two currencies regardless of commodity price movements in two different countries. The rise or fall of this index is not an assessment of the degree of competition in the international market.– Bilateral Rate Index: This is the relative price-adjusted exchange rate between two countries. Therefore, the real exchange rate will reflect the price of domestic goods relative to foreign goods.
Currently used exchange rates in Vietnam
Understanding the interbank rate factors is an important thing that brings many benefits in business as well as investment. Therefore, you need to understand what the interbank rate is?
Interbank rate is the rate formed on the interbank market (trading market only for organizations, banks and large enterprises), which is a tool for the State bank to control the exchange rate. buying and selling of banks.
Market regulations stipulate that the exchange rate between banks in this market is around +/-% compared to the interbank rate announced by the State bank. Normally, the bank rate will be the basis for enterprises to set the accounting exchange rate.
What is the foreign exchange rate? This is an important variable to determine the foreign exchange rate, depending on the need that people are interested in some aspect of the foreign exchange rate. Therefore, you need to understand how foreign exchange rates are classified before learning how to determine foreign exchange rates.
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There are currently two ways to determine the main foreign exchange rate:
– Determining foreign exchange rates on the basis of comparison of purchasing power balance – Determining foreign exchange rates based on gold content between two currenciesIn an open economy, the question of how much foreign exchange rate affects people participating in transactions on the foreign exchange market is quite active. Those are individuals, organizations and businesses in the field import-export sector, banks and non-banking organizations. Once the foreign exchange rate changes, the supply and demand for foreign currency in the market changes, thereby greatly affecting economic variables such as national income, inflation, and unemployment.
You can continue to the article on exchange rates to understand more about how the exchange rate between two currencies is determined