The Federal Reserve System of the USA | SigmaForex

The Federal Reserve System of the USA

Like the other central banks, the Federal Reserve of the USA affects the foreign exchange markets in three general areas:

* the discount rate;

* the money market instruments;

* foreign exchange operations.

For the foreign exchange operations most significant are repurchase agreements to sell the same security back at the same price at a predetermined date in the future (usually within 15 days), and at a specific rate of interest. This arrangement amounts to a temporary injection of reserves into the banking system. The impact on the foreign exchange market is that the dollar should weaken.

The repurchase agreements may be either customer repos or system repos. Matched sale-purchase agreements are just the opposite of repurchase agreements.

When executing a matched sale-purchase agreement, the Fed sells a security for immediate delivery to a dealer or a foreign central bank, with the agreement to buy back the same security at the same price at a predetermined time in the future (generally within 7 days).

This arrangement amounts to a temporary drain of reserves. The impact on the foreign exchange market is that the dollar should strengthen.

Trading Systems with SigmaForex - Part3

Matching Systems

Unlike dealing systems, on which trading is not anonymous and is conducted on a one-on-one basis, matching systems are anonymous and individual traders deal against the rest of the market, similar to dealing in the brokers' market.

However, unlike the brokers' market, there are no individuals to bring the prices to the market, and liquidity may be limited at times. Matching systems are well-suited for trading smaller amounts as well. The dealing systems characteristics of speed, reliability, and safety are replicated in the matching systems.

In addition, credit lines are automatically managed by the systems. Traders input the total credit line for each counter party. When the credit line has been reached, the system automatically disallows dealing with the particular party by displaying credit restrictions, or shows the trader only the price made by banks that have open lines of credit.

As soon as the credit line is restored, the system allows the bank to deal again. In the interbank market, traders deal directly with dealing systems, matching systems, and brokers in a complementary fashion.

Major Currencies In SigmaForex - Japanese Yen

The Japanese Yen

The Japanese yen is the third most traded currency in the world; it has a much smaller international presence than the U.S. dollar or the euro. The yen is very liquid around the world, practically around the clock.

The natural demand to trade the yen concentrated mostly among the Japanese keiretsu, the economic and financial conglomerates.

The yen is much more sensitive to the fortunes of the Nikkei index, the Japanese stock market, and the real estate market. The attempt of the Bank of Japan to deflate the double bubble in these two markets had a negative effect on the Japanese yen, although the impact was short-lived

The European Monetary Cooperation Fund | SigmaForex

The European Monetary Cooperation Fund was established to manage the EMS' credit arrangements. In order to increase the acceptance of the ECU, countries that hold more ECU deposits, or accept as loan repayment more than their share of ECU, receive interest on the excess ECU deposits, and vice versa. The interest rate is the weighted average of all the EMS members' discount rates.

In 1998 the Euro was introduced as an all-European currency. Here are the official locking rates of the 11 participating European currencies in the euro (EUR). The rates were proposed by the EU Commission and approved by EU finance ministers on December 31, 1998, ahead of the launch of the euro at midnight, January 1, 1999.

The real starting date was Monday, January 4, 1999. The conversion rates are:

1 EUR = 40.3399 BEF 1 EUR = 1.95583 DEM
1 EUR = 166.386 ESP 1 EUR = 6.55957 FRF
1 EUR = 0.787564 IEP 1 EUR = 1936.27 ITL
1 EUR = 40.3399 LUF 1 EUR = 2.20371 NLG
1 EUR = 13.7603 ATS 1 EUR = 200.482 PTE
1 EUR = 5.94573 FIM

The euro bills are issued in denominations of 5, 10, 20, 50, 100, 200, and 500 euros. Coins are issued in denominations of 1 and 2 euros, and 50, 20,10, 5, 2, and 1 cent.