Forex Trading For Beginners
Forex Basics
Whenever people travel outside their home country, there is good chance that they have performed currency transactions. Travelers, in many cases, are required to exchange their home country’s currency for the currency of the country they are visiting. Much like the Forex market, there are two currencies involved in such occasions but only one exchange rate.
The U.S. Dollar and the Canadian Dollar
Back in the year 2002, travelers would have received an estimated C$1.60 in Canadian currency for every U.S. dollar. It is safe to say that the exchange rate during that year for the U.S. dollar and Canadian dollar was about 1.60 Canadian dollars for each U.S. dollar.
Years that followed resulted in a dramatic change in the exchange rate and by the year 2006, the rate had fallen to 1.10. This only means that a traveler from the United States would only receive about C$1.10 in Canadian currency for every U.S. dollar exchanged. The measurement of very small changes in this exchange rate can be expressed using 1.1000. If so, the U.S. dollar significantly depreciated against the Canadian dollar during the early part of the twenty-first century.
Eventually, the rate of the Canadian dollar approached parity with the U.S. dollar. U.S. citizens were also less likely to visit Canada, because if they did, they were more likely to spend more than they would have in the past, when the exchange rate was more favorable. On the other hand, travelers from Canada were more likely to visit the United States, since their currency bought more U.S. products than it had previously.
The U.S. dollar and the Euro
The rise of the Euro also created a similar situation to that of the Canadian dollar. In 2002, 2003 and 2004, the Euro created dramatic gains against the U.S. dollar. Additionally during those years, the value of the Euro rose from US$0.85 to above US$1.35. Because of this movement in the exchange rates, citizens from the United States found that vacationing in Europe became very expensive. This kind of change caused a huge influx of shoppers from Europe traveling to the United States, especially during the Christmas season.
There is no doubt that fortunes were made and lost on huge movements, such as those mentioned. However, it is important to remember that even the tiniest shift in the exchange rates can also result in substantial gains and losses.