Cross-rate, Non-convertible (closed) currency - International...


The bulk of international currency settlements between countries is not done by quoting two national currencies to each other, but by quoting the two currencies to the third, usually the most widespread currency in the world.

Expressing the rates of the two currencies to each other through the course of each of them to the third currency is called cross-quote , and the exchange rate so set is cross-rate.

For example, the exchange rate of the US dollar to the Swedish kroon on a currency exchange in Stockholm is established as a result of trades. The bank in Stockholm can proceed from this course to determine its quotation of the US dollar rate for customers. In Moscow, the bank will determine the course of the Swedish kroon to the ruble as a settlement cross-rate based on the known US dollar exchange rates for the Swedish kroon in Stockholm and the US dollar exchange rate established in the bank based on the results of trades on the Moscow Interbank Currency Exchange (MICEX) to the ruble.

Remember the following rules:

1. If you know the currency exchange rates A and the currency In to the same C currency, their relationship of the currency A to the currency B is calculated as a cross-rate by the formula

So, if you give 30 United States rubles (RUR) or 150 Japanese yen (JPY ) for one US dollar (USD), then for one Japanese yen you can get 0 , 2 rubles.:

2. With known rates of the same currency, A to the currency B and C to the currency C is calculated using the formula

3. It is also possible that the currency exchange A is known for the currency In and the currency In to C and to determine the cross- C. In practice, such situations arise when indirect quotes of currencies to the pound sterling or euro are used.

In this case, the cross rate A/C is calculated using the formula R (A/C) = R (A/B) -R (B/C).

When concluding specific transactions for the purchase and sale of foreign currency, the following types of exchange rates are used.

1. Spot rate - the price of a unit of a foreign currency of one country, expressed in units of the currency of another country, set at the time of the transaction, which assumes immediate payment and delivery of currency. (As for the condition "immediately," it means "no later than two business days for the third time since the transaction was committed.")

2. Fixed rate is the price at which the currency is sold or bought, provided that it is delivered on a certain date (in a certain time) in the future. Thus, when concluding such transactions, its participants try to anticipate the value of the exchange rate. If, at the date of delivery of the currency, the rate differs from that in the contract of sale, then one party will receive profit from the exchange rate difference, and the other will incur losses.

Such urgent, i.e. for a certain period of time, currency transactions serve, as will be shown below, a two-fold goal: insurance of their participants against the risk of larger losses as a result of negative changes in exchange rates and the extraction of speculative profit on the difference in rates (urgent and spot) at the time of delivery of currency on the transaction).

All calculations for international transactions between direct participants of currency transactions are carried out through banks that view foreign exchange transactions as one of the means of generating income. Therefore, when quoting banks set two types of exchange rates: Buyer's rate , by which the bank buys the currency and the seller's rate at which the bank sells the currency.

The difference between the buyer's rate and the seller's exchange rate, which is the bank's revenue, is called a spread, or margin.

The spread, or margin, should cover the operational costs of the bank and provide it with a normal profit in currency transactions. At the same time, the size of the margin assigned to banks in different currencies for different clients and depending on the volume of transactions can fluctuate significantly.

An important characteristic of the currency is its convertibility, which means the ability to freely exchange a national currency for a foreign currency at the current exchange rate, as well as pay for foreign goods and services with national currency country, and beyond).

By the degree of convertibility, the currency is divided into freely convertible, partially convertible, non-convertible (closed).

Free convertibility primarily implies the stability of the national economy, the possibility of its economic growth and, as a consequence, the confidence in the national currency from foreign partners. To ensure the free convertibility of its currency, the government of the country concerned should support the liberal regime of foreign trade, so as not to distort world prices for goods and services on the domestic market. In addition, the central bank should have a significant reserve of gold and foreign exchange reserves in order to maintain the exchange rate without administrative sanctions, but restrict the import and export of foreign currency and the regulation of foreign exchange transactions. It follows that it is impossible to achieve full convertibility of the national currency in a declarative way: such attempts are doomed to failure and can lead to significant losses for the state.

Some freely convertible currencies are so-called reserve currencies.

Reserve are currencies that make up reserve funds for international payments and are stored by central banks of other countries.

Objective prerequisites for the acquisition of currency by the reserve status:

• the country's dominant position in world production, exports of goods and capital, gold and foreign exchange reserves;

• developed network of credit and banking services, including abroad;

• An organized market of loan capitals;

• Liberalization of foreign exchange operations, free convertibility of the currency, which provides demand for it from other countries.

The reserve currencies currently include the US dollar, the British pound sterling, the euro, the Japanese yen and the Swiss franc. These five currencies constitute almost 100% of the world's foreign exchange reserves.

Partially convertible currency is exchanged for a limited number of foreign currencies and is not applied in all types of international payments. Most countries, including Russia, have such a currency. Unstable functioning of the United States economy requires significant currency control and regulation by the state, which can not be lifted in the near future.

Inconvertible (closed) currency

This type of currency is not exchanged for other foreign currencies and is used only within the country as a national currency.

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