The currency abbreviation for the Dominican Republic's only official legal currency, the peso oro. The currency is represented by the dollar ($) symbol or RD$. It was introduced in 1937 at par with the U.S. dollar and continued to be used in conjunction with the dollar until 1947. The initial peso was created in 1844 to replace the Haitian gourde, the currency of the country that borders the Dominican Republic. |||There are peso oro coins and banknotes; the currency is divided into 100 centavos. The Dominican Central Bank uses the American dollar as the country's reserve currency. Both U.S. dollars and the euro are also widely accepted in the country. The currency market, also known as the foreign exchange market, is the largest financial market in the world.
A dollar shortage occurs when a country lacks a sufficient supply of U.S. dollars for use in international trade. One way to accumulate dollars is for a country to export more goods (paid for in dollars) than it imports. However, many countries are net importers, and therefore do not naturally accumulate enough dollars through their balance of payments. If the dollar shortage is critical, sometimes a country may request assistance from the U.S. for temporary liquidity. |||The U.S. dollar is one of the most important currencies used in international trade. Since the U.S. is the largest economy in the world (as of 2009), trade with the U.S. is an important facet of many countries' economies. In addition, the dollar is favored as a currency in international trade because of its stability as a store of value. One of the most important examples is crude oil, which is priced and sold in U.S. dollars worldwide.
The exchange rate of a currency against the U.S. dollar (USD). Most currencies that are traded in international markets are quoted in terms of number of units of foreign currency per USD. However, some currencies, such as the euro, British pound and Australian dollar, are quoted in terms of U.S. dollars per foreign currency. |||Since practically all currencies use the USD as the base currency, it is easy to calculate cross currency rates - which are exchange rates for one currency in terms of another currency that is not the US dollar. However, particular care must be taken when calculating such rates, especially if the currencies involved include those that are quoted in terms of USD per foreign currency.
When a country imports more goods and services from another country than it exports back to the same country. The net effect of spending more money importing than is received from exporting causes a net reduction in the importing country's reserves of the exporting country's currency. |||For example, if Canada has exports $500 million worth of goods and services to the U.S. and has also imported $650 million worth of goods and services from the U.S., the net effect will be a reduction in Canada's U.S. dollar reserves.A dollar drain position should not be maintained indefinitely. As a result of the laws of supply and demand, importing more than is exported may cause a devaluation of the importing country's currency. However, this effect will be mitigated if foreign investors pour their money into the importing country's stocks and bonds, as these actions will increase the demand for the importing country's currency, causing it to appreciate in value.
A currency swap used to hedge the risk associated with the issuance of a dual currency bond. A dual currency swap allows the bond issuer to repay the principal and coupon in the base currency or another currency. Exchange rates are preset in dual currency swaps. |||A dual currency swap is essentially a mirror of a dual currency bond; in a dual currency swap, the issuer exchanges a floating rate for a fixed one. The bond issuer is willing to take on the currency risk in order to lower borrowing costs by making payments in a currency other than the base currency. For example, suppose that a company borrows $50 million to update a manufacturing facility. In order to reduce borrowing costs, the company enters into a dual currency swap involving euros. The company pays the swap counterparty the $50 million for the equivalent amount of euros, and receives interest payments in dollars at a fixed rate (which allow the company to service the bond). Upon the bond's maturity, the company receives the $50 million, and pays the counterparty the equivalent value in euros.
A forex trading service that allows an investor to speculate on exchange rate movement between two specific currencies through a fund or instrument. A dual currency service typically requires the investor to make directional speculations between the currencies, such as speculating that the U.S. dollar will rise against the yen. |||Dual currency service instruments typically involve currency pairs of major, liquid currencies, such as the U.S. dollar, pound, Swiss franc, euro and yen. Because it is a directional service, the investor is able to make generalized price bets as opposed to bets on the specific exchange rate spot price.
A fixed deposit with variable terms for the currency of payment. Deposits are made in one currency, but withdrawals at maturity occur either in the currency of the initial deposit or in another agreed upon currency. |||This is a deposit that creates a foreign exchange rate risk for the investor. Similar to a currency swap, you can be rewarded or punished for the risk taken.
A type of exotic option that gives an investor an agreed upon payout if the price of the underlying asset reaches or surpasses one of two predetermined barrier levels. An investor using this type of option is able to determine the position of both barriers, the time to expiration, and the payout to be received if the price does rise above one of the barriers. Either one of the barrier levels must be breached prior to expiration for the option to become profitable and for the buyer to receive the payout. If neither barrier level is breached prior to expiration, the option expires worthless and the trader loses all the premium paid to the broker for setting up the trade. |||This type of option is useful for traders who believe the price of an underlying asset will undergo a large price movement, but who are unsure of the direction. Some traders view this type of exotic option as being like a straddle position, since the trader stands to benefit on a calculated price movement up or down in both scenarios. This type of option is growing in popularity among traders in the forex markets. For example, assume the USD/EUR rate is 1.20 and the trader believes that next week's economic numbers will greatly affect this rate. A trader can use a double one-touch option with barriers at 1.19 and 1.21 to capitalize on this outlook. In this case, the trader stands to make a profit if the rate moves beyond either of these levels before expiry, and he/she stands to lose the premium if the rate remains within these barriers.
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