The FOREX market is a one-currency purchase and sells other currencies. Forex is a large world financial market that is bigger than the stock market. Forex daily trading volume is around 3 billion US Dollars. Forex is a foreign market where transactions are carried out through brokers, Trading continues to be carried out 24 hours a day for 5 days a week. With the help of brokers, trading allows to involve almost all currencies. Currency is usually marked with three letters, two letters from the beginning are the name of the country and the third letter is the name of the currency. The most volatile currencies are the US dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound (GBP) and Swiss Franc (CHF).
EUR / USD. The price of a currency against other currencies is constantly changing (up or down). For example, if we say that the US dollar is down, it is not clear whether the US dollar can rise against the Australian dollar and down against the Euro. Currency is always traded in pairs. Because the currency quotes one currency against another, the name of the currency can be separated by a slash (/) and written into EUR / USD.
Currency pairs according to the price ratio of the currency. For example, the price of the EUR / USD pair shows how much the USD price you can buy for 1 EUR. The first currency in the pair is the base currency and the second currency is the quoted currency. In the example, the Euro is the base currency of the world’s major currencies. The base currency pairs are as follows:
There are so-called main pairs traded around 75% of all market transactions on Forex: EURUSD, GBPUSD, USDCHF and USDJPY. As we know, the US dollar is in all currency pairs, therefore, if the currency pair contains the US dollar, the pair is considered the main currency pair. Couples in which there is no US Dollar (USD), the pair will be called the cross currency or cross-rate pair. Cross currency currency pairs that actively trade are as follows:
Let us study one of the extraordinary events in the history of the currency pair. One of the most important events in the historical movement of the Forex market was shown in the British pound in the fall of 1992, precisely on September 16. The tragedy was known as Black Wednesday. The event marked the biggest fall ever experienced by England. At that time the exchange rates being used were GBP / DEM (British pound vs. Deutschemark) and GBP / USD (British pound vs. US dollar). The fall of the British pound against the US dollar in November to December 1992 is estimated at 25% (from 2.01 to 1.51 GBP / USD).
Therefore, let’s discuss the most interesting events in the history of the currency pair.
One of the most interesting movements in the history of the Forex market was the British Pound in 1992, more precisely on September 16. Furthermore, the day was referred to as “Black Wednesday” when the extreme decline in the British currency.
The event looks more dramatic in the GBP / DEM (Pound / Deutchemark) currency pair and in GBP / USD (Pound / US dollar). The decline in the British Pound against the US Dollar in the period from November to December 1992 totaled 25% (from 2.01 to 1.51 (GBP / USD). The main reason for the sterling crisis was British participation in the European currency system with a set of currency corridors; parliamentary elections passed; low industrial output; UK bank efforts to maintain a level of balance in Deutschemark and large investor spending. At the same time, because of the tendency of the German currency market to be more profitable than the German currency market. Overall, speculators competed in selling pounds for Deutschemark and for the US dollar. As a result of the currency crisis are as follows: a sharp rise in interest rates from 10% to 15%, the British government must accept the devaluation of the pound, and withdraw the European monetary system. As a result, the Pound returned to an exchange rate that was free to change.
Other attractive currency pairs are Yen – US Dollar (JPY / USD). The dollar-yen pair is third among the most traded currency pairs after Euro / US Dollar and US Pound / Dollar. The pair is the most actively traded pair in the Asian session. The movement of the pair is usually smooth: the USD / JPY pair reacts quickly to risks that threaten the financial markets. From the mid-80s, the Yen rank began to rise actively against the US dollar. In the early 90s when Japan’s economic situation was hampered, unemployment increased; income and wages dropped and the standard of living of the country’s population also declined. And from the beginning of 1991, this caused bankruptcy in financial organization organizations in Japan.
As a result, the quotation of the Tokyo stock exchange was destroyed, a Yen devaluation ensued, so that another wave of bankruptcies increased in manufacturing companies. And in 1995, the historical value of the JPY / USD pair was recorded at -79.80. The onset of the Asian crisis in 1997-1998 led to the destruction of the Yen which created a decline in the Yen-US pair from 115 Yen to one US dollar to 150. The global economic crisis touches almost all fields in human activity. No exception to the Forex currency market. Although Forex market participants (central banks, commercial banks, investment banks, brokers and dealers, pension funds, insurance companies and transnational companies) are in a difficult position, the Forex market continues to function. The market is stable and profitable as before. The financial crisis caused a drastic change in the value of the world currency. During the crisis, the Yen strengthened against almost all other currencies. Yen proves the most trusted currency instrument for traders. One of the reasons is because Yen strength can be a protection that traders want in currency chaos. Other experts stated an increase in the Yen value by not carrying out Carry Trade transactions. The following is a change in the currency in the Yen pair.
Another attractive currency pair is the US dollar vs. Japanese Yen (USD / JPY). The US Dollar and the Japanese Yen are the third exchange rate which are most often traded after EUR / USD and GBP / USD. This exchange rate pair is traded more frequently in the Asian session. The movement of the exchange rate pair is relatively smooth; USD / JPY exchange rate pairs quickly to the sharpness of financial market risk.
Starting in the mid 80’s the yen’s rating began to increase actively if compared with the US dollar. In the early 90s, Japan’s economic growth suddenly stalled, unemployment also increased; income and wages also fall, as well as the living standards of the country’s population. And in early 1991, this resulted in the bankruptcy of several financial institutions in Japan. As a consequence, the quotes on the Stock Exchange fell, a devaluation of the yen ensued, then a wave of bankruptcies experienced by many manufacturing companies began to occur.
In 1995, the lowest point in the history of the USD / JPY pair exchange rate was recorded at -79.80. The Asian crisis which began in 1997-1998 caused the fall of the yen. As a result This resulted in the fall of the US-yen exchange rate pair from 115 yen per US dollar to 150 yen per US dollar.
The global economic crisis almost affected all population activities. The Forex market is not left behind. Even though Forex market participants (central banks, commercial banks, investment banks, brokers and dealers, pension funds, insurance companies and transnational companies) are in quite difficult conditions, the Forex market is still able to function optimally, even more stable and profitable than before the crisis. The financial crisis has resulted in a drastic change in the value of currencies around the world.
When a crisis occurs, the yen strengthens compared to other currencies. Even the value of the dollar and the euro does not grow like a yen that can be crowned by traders as the most reliable currency for trading. One of the consequences of such a strengthening in the Japanese Yen is that traders find a refuge in the midst of monetary turmoil. Other experts explain the uprise that occurs in the yen exchange rate by refusing to conduct trading transactions. Thus, below is a currency change that occurs in the yen pair.
From the table, we can find out that the Yen strengthened against the US dollar more than 18%, against the Euro with 27.5% and against the Pound by 33%. Among the strongest currencies the US dollar ranks fourth. It is strange, the US dollar remains the most trusted currency in the world despite the increasing recession in the US, the country’s financial system decline, spending $ 750 billion in Paulson’s plan for economic recovery and foreign debt that continues to increase to billions of US dollars. Market investors continue to trust the currency. Here is a table of changes in the value of the currency against the US dollar.
From the data above it can be seen, that the US dollar strengthened against the Euro by 8.3% and against the Pound by 19.2%, against the Yen and the Franc remains down. In the previous table, with 18.5%, the second, and this table 2.5%. The euro was ranked 12th in a stronger currency.
The negative factors are the decline in GDP and production in the largest eurozone countries (Germany, France and Italy), concerns about recession in the EU, reports on stagnation in production, inflation and large foreign debt in EU members, especially in Portugal, Ireland, Spain and Greece. There is a threat of secession from the European zone. The decline in the Euro was influenced by investors coming out of this currency into protection currencies (US dollars and Yen). The table of changes in the value of the currency against the Euro are as follows:
During the financial crisis the Euro was weak against the following currencies: the US dollar by 8.3%, the Yen by 27.5%, the Franc by 8.8% and the Aussie by 7.7%. From what has been explained above, we can conclude that the Forex market, unlike the stock market and other business activities, is not affected by the crisis.
On the contrary this market is indeed profitable even after the crisis. Many of the Forex market participants gained their income during the period of increased crisis. In this situation, many people think that the way out of the crisis is Forex. Often they reveal in China: the crisis involves not only economic chaos and social pressure, but also the right time to invest and to overcome many problems.