Exotic currencies are the currencies which have limited dealings and very little liquidity. Exotic currencies are neither minor nor major currencies. Some of the minor currencies include Canadian Dollar, Australian Dollar and New Zealand Dollar. On the other hand, the minor currencies in the forex market are U.S. Dollars, Euro, Japanese Yen and Swiss Francs. The exotics play an extremely vital role in forex trading and are equally important as are the major currencies.
Few examples of the exotic currencies include Uruguay Peso, Thai Baht, and Iraqi dinari. It can often be extremely expensive of trade in exotic currencies as the bid-ask spread is usually quite large.
The role of the forex market as the one and only domain for financial institutions as well as major banks like the U.S. Federal Reserve is immensely important. The Forex market has been highly success in helping the banks and financial institutions makes substantial profit which is now offered to the common people. Most countries of the world have now become dependent on each other because of a hike in the foreign investments and worldwide trade.
The economic condition of a country can have a huge impact on the fluctuations of the value of the currency of that particular country as the various economic facts affect the currency’s rate of interest. Thus, the monetary health of a country is determined by the appreciation or depreciation of the value of the country’s currency.
Exotics terms and definitions
- Geek: a Quant
- Free floating currency: It stands for the currency that has an exchange rate which varies in comparison to other currencies.
- Majors: The most widely traded and liquid currency pairs. Major currency trades constitute almost 90 percent of the Forex trading in total.
The top most traded currencies in the forex market are:
- U.S. Dollars: The price index determine the relative strength of weakness of the Dollar. When the index figure is large, it means that the value of Dollar is stronger. In the same way, when the index figure is small, it indicates that the value of dollar has not depreciated.
- Euro: The adoption of a single currencies by all countries of the European Union has sowed seeds of the creation of what is known as “Euroland”. In total, 11 countries of European Union use Euro as their currency including Spain, Italy, France, Belgium, Austria, Portugal, Luxembourg, Ireland, Finland, Germany and Netherlands. All these nations together have over 300 million people living in it and account for over 20 percent of the total world economy. It also represents the hugest foreign market of the world.
- Japanese Yen: Japan continues to be the undisputed global power in economy even in today’s competitive marketplace. After the second world war, the government of Japan has applied all its resources and energy into the development of its economy. As a result of this, it has now become one of the largest economic power throughout the world. Thus, the Japanese Yen is also the 3rd most widely traded currency.