Forex Basics: An Exchange Rates Tutorial

Profits are gained and lost on the foreign exchange, or 'Forex', market due to fluctuations in the exchange rate. This fact may seem like common knowledge, but one should not take for granted how exchange rates are determined.

There is actually a very rich history behind the concept of the exchange rate, and it is important that you understand why things came to be as they are -- as well as how to capitalize on that knowledge.

This quick tutorial on exchange rates will help you do just that.

First, let us look at the simplest definition of an exchange rate. An exchange rate is the value of one currency in relation to another. If one U.S. dollar is worth $1.20 Canadian, then the exchange rate is 1:1.2, or 1.2 for the CAD/USD currency pair.

What does this really mean, though? Why is it that one currency can be worth more than another, and who decides?

If you look back to the earlier part of the 20th Century, you'll recall that most currencies of the world were back by precious metals, like silver and gold.

It used to be that the United States followed the 'gold standard', which 'pegged' the Dollar to the price of 1 ounce of gold. All other currencies were then 'pegged' to the Dollar and allowed to fluctuate in either direction by a margin of no more than 1 percent.

This type of exchange rate, although it allowed for minor fluctuation, was considered a “fixed exchange rate”.

Now, fast-forward to the latter half of the century, and you find that the 'gold standard' has been dropped, along with the fixed rate model of exchange. Instead, the foreign exchange market now operates primarily on a 'fluctuating exchange rate'.

Fluctuating exchange rates are governed by the market forces of supply and demand. If the demand for a currency exceeds the supply, then the exchange rate (and value) of that currency will rise.

Likewise, if the supply of a currency exceeds market demand, then the value of that currency (and its exchange rate) will drop.

We see this happening today with the U.S. Dollar. In order to keep up with government spending, the federal reserve prints more and more dollars, then sells them to other countries as 'debt'.




The market forces which previously gave the dollar its strength -- such as oil exports and oil transaction denominated in U.S. dollars - have eroded. Thus, we not only find the exchange rate of the dollar weakened, but also the exchange rates of many of our closest trading partners.

The Japanse Yen, for example, has fallen even more than the dollar. Part of this is due an overall crash in the Asian market, but it is also linked to the fact that much of Japan's economic growth at the end of the last century depended upon exports to the United States.

This is just one example of how market forces affect exchange rates, but it is a useful one for examining some of the factors involved in rate fluctuations.

If you would like a real world exchange rate tutorial, I recommend opening a demo trading account with an online broker. Do some test trades to get a feel for things, and make note of current exchange rates.

Then, make sure you stay abreast of world and financial news, and see if you can spot the relationships between major announcements and rate fluctuations!


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It Is Possible To Run A Home Business And Work At The Office

Many people ask themselves if it is really possible to run a home business and still continue to work at their office job. The answer is yes. This may surprise some people. How do you have the time? That’s too much to do at one time. How can you manage?
All of these comments and questions are involved in juggling home business and an outside job, but the key is that it that you are capable. Here are three main things you want to keep in mind in order to have it all.

1:Drive!
The want or desire to have a home business is what really matters. If you want to keep your current job as well as begin your own home business you truly have to be focused on being able to do so. Without a strong want that will drive you to do what is necessary you will lead yourself to failure. If you believe that you are ready to commit to both jobs, and do whatever is necessary to maintain both than you are taking your first step in the right direction.

2:Time!
You aren’t just given a pocket full of time. Everything in this day and age is about rushing and stretching what time we have. This is still very true with juggling outside work and a home business. You have to be willing to make time. What this means is you must be willing to use whatever free time you have from your office job and apply it to your home business. Weekends, evenings as well as holidays can be spent working on your home business. As long as you are applying the time you have to your home business, you can work both. It all goes back to having the drive to do what is necessary to have what you want.

3:Patience!
This is something we all need more of. You will need to build patience when running both your home business and outside work. You will indeed be frustrated at times, waiting for packages or updates on business progress. You will be frustrated with customer or clients from both jobs. By building patience and also some understanding you will help ease some of the stress that comes from working both jobs.

Drive, Time and Patience all go in hand when working a home business and outside office work. You have to be efficient with your time and manage it wisely. Keep focused on your goal. Don’t lose track. Be patient, because success does not happen overnight and unfortunately not everyone you will encounter in your job is patient or understanding. As long as you make the effort, you can in fact run a home business and work in the office to.

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