What is “Loan and Credit”? – How does the currency market work

What is “Loan and Credit”? – How does the currency market work

“Loan and Credit” is a commonly used abbreviation for “currency exchange market”. With the “Foreign Exchange”. By definition, all Loan and Credit rates refer to the relationship between two currencies, so-called “Currency pair”.

The term “Loan and Credit” is used interchangeably with the abbreviation “FX” . Both terms are correct and refer to the same concept – currency exchange. The term “FX” is more often used in the US, while “Loan and Credit” was until recently widely used in Great Britain and Europe. Professional traders in the USA (in banks and brokers) use the term “FX”, while “Loan and Credit” is the term more often used in the retail market.

Currency exchange literally refers to money

Currency exchange literally refers to money

And more specifically to money in two different denominations. Part of the ‘exchange’ process is to transfer one monetary value in exchange for another. The term ‘currency exchange’ is a transaction in which each party is willing to exchange its money basket for an equivalent amount of money denominated in a second currency. The price at which both parties are willing to exchange is the exchange rate .

The price of one currency converted to another currency is called the ‘rate’ (not the ‘price’). Although the word “price” is just as often used, but incorrectly. This is the only market in the world where instead of the word ‘price’ the word ‘course’ is used. The reason is probably that the word ‘course’ has been used since the Middle Ages to refer to a tariff or tax. Converting one currency to another means applying a ratio or proportion of one currency to another. The commonly used Latin expression ‘pro rata’ comes from the expression ‘pro rata parte’, meaning ‘proportionally’.

What is exchanged on the Loan and Credit market?

What is exchanged on the Loan and Credit market?

Currency exchange refers to two cash baskets, each with its own denomination. A currency exchange transaction can be as simple as buying $ 165 in exchange for £ 100 at the airport exchange office. The exchange rate here is USD 1.65 per British pound sterling.

The order of names in currency pairs is not accidental

Why is the exchange rate not £ 0.6061 per dollar? It is the same exchange rate expressed differently (it is a mutual or 1 exchange rate divided by 1.65). The answer lies in the historical convention of quoting the price of other currencies in terms of how much they cost in pounds. Pound sterling has been a reference currency for centuries until just after World War II. So the main currency against which all other currencies were rated and valued.

After World War II, the US dollar became the reference currency. Thus, most other currencies were valued in terms of the number of units of foreign currency that can be obtained for one dollar.

As a rule, all money not issued by the government is “foreign”. The natural way of perceiving foreign exchange is the question: “How many units of foreign currency can I get for a fixed amount of my national currency?” This is how a tourist or importer perceives foreign exchange. However, because the dollar is currently the reference currency against which almost all other currencies are valued, the dollar is the most important in many currency pairs. Although not all. The first of two names in a currency pair is generally a valid name, and the second is a secondary or weaker name.

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