The three forex pairs which include currencies from countries that possess large amounts of commodities. The commodity pairs are: USD/CAD, USD/AUD, USD/NZD. These pairs are highly correlated to changes in commodity prices, therefore traders looking to gain exposure to commodity fluctuations often take advantage of these pairs. |||Although there are many countries with large natural resource and commodity reserves, such as Russia, Saudi Arabia and Venezuela, the commodities of many of these nations are usually highly regulated by their domestic governments or thinly traded. The Canadian, Australian and New Zealand dollars are traded at high volumes and are therefore very liquid in the forex market.
A currency that belongs to a country whose economy is strongly correlated with the price fluctuations of a certain commodity. |||For example, a large portion of the Canadian economy is tied to the price of oil, which causes the price of this commodity to become a major driver in the value of the Canadian dollar. Other countries such as Australia or New Zealand are in a similar position due to their economic dependence on precious metals such as gold. All of these countries sees money flowing in when their respective commodities rise, causing their currencies to appreciate.
The currency abbreviation for the China yuan renminbi (CNY), the general term for the currency of the People's Republic of China (PRC). The renminbi (or yuan) is made up of 10 jiao and 100 fen and is often either abbreviated as RMB, or presented with the symbol ¥. Renminbi is issued by the People's Bank of China, which is controlled by the PRC. The yuan is issued in banknote (bills) multiples of one, five, 10, 20, 50 and 100. |||The Chinese definition of renminbi is "people's currency". There have been several series of renminbi issued since the 1950s, each of which has its own banknotes and coins; exchanges between different series was allowed at specified exchange rates. The fourth series of renminbi is still legal tender today, with the prior series having been phased out. It is not a free-floating currency system; it is managed (by the PRC) through a floating exchange rate. Previously, it was pegged directly to the U.S. dollar. The renminbi (and its management by the People's Bank) figures to play an important role in the global economy during the 21st Century, as China is the most populous nation in the world and is just beginning to solidify its economic infrastructure.
The currency abbreviation for the Chilean peso (CLP), the currency of Chile. The peso is often presented with the symbol $ and is made up of 100 centavos, even though there are no circulating centavo coins. Chilean peso banknotes are issued by the Banco Central de Chile. |||The "old" peso was used as currency in Chile between 1917 to 1959, when the escudo (CLE) came into use. The current (or new) Chilean peso was re-established on September 29, 1975, replacing the escudo at an exchange of 1:1000.The Chilean people also refer to their currency by "luka" when refering to the 1,000 peso note, "quina" for the 500 peso coin,and "gamba" for the 100 peso coin.
A currency that can be readily bought or sold without government restrictions in order to purchase another currency. A convertible currency is a liquid instrument when compared to currencies tightly controlled by a central bank or other regulating authority. |||Developing countries or those with more authoritative governments are more likely to place restrictions on the exchange of currencies. Currencies from these countries are typically less stable, and may come from economies with high inflation rates, and are more illiquid.
The ratio at which one currency can be exchanged for another. For example, a conversion rate for euros to dollars of 1.25 means that one euro can convert to 1.25 dollars. A high conversion rate between currencies means that one currency can "buy" more units of the other. If one euro can be converted into more than one U.S. dollar then the dollar has a lower value relative to the euro. Also commonly referred to as the exchange rate. |||The conversion rate depends on several factors, one of which is the interest rate set by the currency's issuing central bank compared to the interest rate set by the bank of the currency being converted into. Countries with high real interest rates typically attract investors from other countries and thus have an increased demand and higher value for their currency.
An exchange rate that eliminates the effects of exchange rate fluctuations and that is used when calculating financial performance numbers. Companies with major foreign operations often use constant currencies when calculating their yearly performance measures. |||For example, consider a French company that sells primarily abroad and sets its prices according to U.S. dollars. If sales increase 10% in dollar terms, but the dollar fell 5% against the franc during the year, only a 5% increase in sales will be reported in the accounts, unless a constant currency is applied in the calculation. In other words, the use of constant currencies allows companies to show performance unaffected by currency fluctuations.
A collection of risks associated with investing in a foreign country. These risks include political risk, exchange rate risk, economic risk, sovereign risk and transfer risk, which is the risk of capital being locked up or frozen by government action. Country risk varies from one country to the next. Some countries have high enough risk to discourage much foreign investment. |||Country risk can reduce the expected return on an investment and must be taken into consideration whenever investing abroad. Some country risk does not have an effective hedge. Other risk, such as exchange rate risk, can be protected against with a marginal loss of profit potential. The United States is generally considered the benchmark for low country risk and most nations can have their risk measured as compared to the U.S. Country risk is higher with longer term investments and direct investments, which are investments not made through a regulated market or exchange.
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