Exchange rate-the embodiment of strength between countries

An important concept related to foreign exchange is "exchange rate". Exchange rate is also called "foreign exchange market" or "exchange rate". The explanation in the book is that the exchange rate is the price of one currency, or the ratio of one currency to another, which essentially refers to the ratio of purchasing power of two currencies.

What needs special mention is the difference between cash and cash. Cash and cash are two different forms of foreign exchange assets held by China residents. Spot exchange is a kind of foreign exchange settlement certificate, which can be directly recorded by banks through electronic settlement. It includes foreign exchange deposits remitted from foreign banks to China, as well as foreign currency drafts, promissory notes and traveler's checks. Cash refers to foreign currency cash held by domestic residents. Because banks have interest losses when buying foreign currency cash, the cash purchase price is generally lower than the cash purchase price in the bank's foreign exchange quotation. Cash selling and cash selling, the bank has no interest loss, so the cash selling price is basically the same as the cash selling price. See table 1 for relevant information.

Table 1 China Bank's foreign exchange rate on June 4, 2020 (taking USD as an example)

Source: Bank of China website.

B

(foreign) exchange quotations

Since the exchange rate is the price of another currency expressed in one currency, it is first necessary to determine which country's currency is the standard in a pair of currencies. Different standards will lead to several different foreign exchange rate pricing methods. Commonly used pricing methods include direct quotation, indirect pricing and dollar pricing.

(1) Direct quotation

Direct quotation method, also known as "price payable method", is an exchange rate method of expressing a unit's foreign currency in domestic currency. In the international foreign exchange market, most currencies such as Japanese yen, Swiss franc and Canadian dollar are quoted directly. Under the direct quotation, if the amount of domestic currency converted from a fixed amount of foreign currency decreases, it means that the domestic currency is appreciating and the foreign currency is depreciating; If the converted domestic currency increases, it means that the domestic currency is depreciating and the foreign currency is appreciating. As shown in table 1, on June 4, 2020, the central parity of China Bank was 7 10. 12. For RMB, this is a direct quotation, which means that the RMB price of 100 USD is 7 10. 12 yuan.

(B) indirect pricing method

Contrary to direct quotation, indirect quotation is an exchange rate method that how many units of foreign currency are used to express a certain unit of local currency. In the international foreign exchange market, euro, pound and Australian dollar are all indirectly priced. Under the indirect pricing method, if a fixed amount of domestic currency is converted into more foreign currency, it means that the domestic currency is appreciating and the foreign currency is depreciating; If the foreign currency exchanged is small, it means that the domestic currency is depreciating and the foreign currency is appreciating. It should be noted that the quotations under the direct quotation method and the indirect quotation method can be derived from each other. For example, in the direct quotation, the quotation of USD against RMB is 7. 10 12, then in the indirect pricing mode, the quotation of USD against RMB is 1/7.10/2 = 0.1408.

(C) the dollar price method

In addition to direct quotation and indirect pricing, due to its special status, the US dollar is generally regarded as foreign currency in the foreign exchange market. Therefore, if there is a currency in the exchange rate that is USD, the USD pricing method (USDollarQuotation or DollarTerms) is mainly used in the transaction quotation table of the foreign exchange market. Under the dollar pricing method, all countries measure the value of their currencies based on the dollar, that is, how much foreign currency should be exchanged based on a certain unit of dollar; In the case of non-US dollar foreign exchange transactions, the exchange rates of buyers and sellers' currencies are calculated according to their respective ratios to the US dollar. At present, in addition to the pound, euro, Australian dollar and New Zealand dollar (NZD), the dollar pricing method has been basically popularized in the international foreign exchange market.

For example, the quotation of USD to JPY is 109.068 and USD to RMB is 7. 12 19, so we can use USD as the intermediary to calculate the quotation of JPY to RMB, because RMB 7. 12 19.068 can be converted into JPY/. The exchange rate of Japanese yen against RMB is 7. 1 219109.068 = 0.0653, which means that1Japanese yen can be converted into RMB 0.0653.

As can be seen from Table 2, except for the Japanese yen, the currency quotations of major transactions in the world are generally composed of one digit before the decimal point plus four (or five) digits after the decimal point. In foreign exchange transactions, we usually hear the concept of "point". The so-called "point" refers to the smallest unit of exchange rate change. For example, the exchange rate of US dollar against RMB rose from 7. 12 19 to 7. 1220, then we say that the euro rose by 1 point. The price change of a currency 1 point is called "point value". At present, the exchange rate quotation in the foreign exchange market mostly adopts the US dollar quotation method, so the point value is generally in US dollars. The point value can be simply understood as the dollar value that the currency exchange rate changes every 1 point, and the value is 1.

Table 2 Foreign exchange quotation

Source: Waihuibao website (www.fx 168.com).

The calculation method of currency point value in dollar quotation method and non-dollar quotation method is different.

Point value of currencies (mainly euro, pound, Australian dollar and New Zealand dollar) quoted by non-US dollar quotation method = minimum change unit of exchange rate quotation × exchange rate.

Point value of currency quoted by USD quotation method = minimum change unit of exchange rate quotation/exchange rate.

Take USD/JPY as an example. Suppose the exchange rate is 109.068. Because the US dollar pricing method is adopted, the exchange rate changes by 1 point, that is to say, the Japanese yen price of the US dollar changes by 0.00 1109.068 = 0.0000099.

In addition, both the foreign exchange spot market and the futures market trade with the "hand" as the basic contract unit, and the contract value of the spot market 1 standard hand is 100000 USD. If investors hold more than 1 USD/JPY, when the exchange rate rises from 109.068/point to 1 09.069, the profit amount of multiple orders = contract price × point value =1000000× 0.069.