More on Exchange Rates..

The foreign exchange market is the largest financial market in the world – larger than any equity market – with an average daily volume of more than US$6 trillion. The largest volume is traded in the inter-bank market in London.

Foreign exchange used to comprise a large chunk of bank’s markets revenues. However, over the years with increasing regulation and more competition, banks make significantly lesser revenues now in foreign exchange markets. 


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#1. Which market is the largest de-centralized market in the world?

The foreign exchange market is the largest decentralized financial market in the world, with a daily volume of $6.6 trillion! (figure as of 2022). That’s larger than even Japan’s GDP!

#2. What are the most traded currency pairs in the world called?

The majors involve currencies like Euro, US dollar, Japanese yen, Pound sterling, Australian dollar, Canadian dollar, Swiss franc and the New Zealand Dollar. Opinions differ somewhat over a definitive list of major currencies, but almost all will include the traditional ‘four majors’ – EUR/USD, USD/JPY, GBP/USD and USD/CHF – as well as the three most-traded ‘commodity currencies’ against the US dollar, which are AUD/USD, USD/CAD and NZD/USD.

#3. If you are trading Swiss francs with Australian dollars, in which order would the currencies be listed?

There is a priority ranking for all the major currencies from which the order of pairs is derived. See the next question !

#4. Which currency ranks the highest on the currency priority ranking list?

The prevailing forex market quotation convention gives precedence to certain currencies over others that affects whether they are usually quoted as the base currency or the counter currency in a currency pair. This established priority ranking or “pecking order” for six of the most commonly traded currencies is as follows: EUR > GBP > AUD > NZD > USD > CHF > JPY.

#5. Did you know that popular currency pairs have their own nicknames? What do you think the name of the GBP/USD (pound sterling/US dollar) pair is?

The nickname “cable” originated from the communications cable under the Atlantic Ocean, which synchronized the GPB/USD quote. Similarly the USD-CAD pair is called Loonie and the EUR-USD pair is called Fiber.

#6. What are exotic currency pairs?

In the context of the currency market, the term “liquidity” refers to the degree to which forex market is able to handle a purchase or sale transaction without causing a substantial change in the exchange rate for the currency pair in question.

Because there is a lower trading volume and liquidity of these pairs, they represent high-risk trades and are therefore referred to as “exotic pairs”.

#7. What are cross currency pairs? These refer to currency pairs …

Cross currency pairs are those that don’t contain the US dollar. Cross currency pairs that involve the euro, are often called euro crosses. GBP/EUR is a key currency pair that explores the relationship between the British pound and the euro. The nickname for this pair is ‘chunnel’, representing the connection between Britain and Europe via the Channel Tunnel which runs from Dover to Calais.

#8. Most forex traders watch for certain chart patterns to inform their trading. Which of the following is NOT one of these chart patterns?

Of these patterns the head and shoulders and triangle patterns are both relatively simple patterns which are often used by traders.

#9. What does a head and shoulders pattern in a forex chart indicate?

The head and shoulders pattern is considered to be one of the most reliable patterns, usually indicating that an upward trend will soon come to an end.

#10. What does a long white or green candlestick chart pattern indicate? That there …

Candlestick charting originated in Japan in the 1700s and was used for tracking the price of rice. It is a suitable technique for trading any liquid financial asset.

#11. Which particular factor do you think most affects the AUD-USD exchange rate?

If you want to start trading AUD/USD, it is important to keep an eye on the value of coal and iron ore on the commodities market, as well as the value of other metals such as copper. This is because any fluctuation in the value of these commodities will likely cause a reciprocal fluctuation in the value of the Australian dollar relative to the US dollar.

#12. The price of which commodity has the largest influence on the USD-CAD exchange rate?

In 2020, the top exports of Canada were Crude Petroleum ($47.2B), Cars ($31.8B), Gold ($14.4B), Vehicle Parts ($9.06B), and Sawn Wood ($7.69B). The value of the Canadian dollar is largely tied to the price of oil because the commodity is Canada’s main export. As a result, if the price of oil changes – perhaps because of a change in the Organisation of the Petroleum Exporting Countries (OPEC)production quotas – then the price of the Canadian dollar will likely be affected.