Forex crunch eur usd daily
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Here are some general data. The key countries are Germany, France, Italy and Spain. The US dollar is the reserve currency of the world. When markets are calm, this influx pushes the common currency higher. However, the eurozone has its share of economic and political issues and speculation takes its toll.
While the worst may be behind us, it is always looming. The euro-zone economies are growing at a robust pace in The ECB will halve bond-buys to 30 billion euros from January However, it left the door open to extending the QE program beyond September, and this hurt the euro. Interest rate swaps are also used speculatively by hedge funds or other investors who expect a change in interest rates or the relationships between them.
Traditionally, fixed income investors who expected rates to fall would purchase cash bonds, whose value increased as rates fell. Today, investors with a similar view could enter a floating-for-fixed interest rate swap; as rates fall, investors would pay a lower floating rate in exchange for the same fixed rate.
Interest rate swaps are also popular for the arbitrage opportunities they provide. Varying levels of creditworthiness means that there is often a positive quality spread differential that allows both parties to benefit from an interest rate swap.
The interest rate swap market in USD is closely linked to the Eurodollar futures market which trades among others at the Chicago Mercantile Exchange. Typically these will have none of the above customisations, and instead exhibit constant notional throughout, implied payment and accrual dates and benchmark calculation conventions by currency. The net present value PV of a vanilla IRS can be computed by determining the PV of each fixed leg and floating leg separately and summing.
For pricing a mid-market IRS the underlying principle is that the two legs must have the same value initially; see further under Rational pricing. Calculating the fixed leg requires discounting all of the known cashflows by an appropriate discount factor:. Calculating the floating leg is a similar process replacing the fixed rate with forecast index rates:.
This has been called 'self-discounted'. Some early literature described some incoherence introduced by that approach and multiple banks were using different techniques to reduce them. It became more apparent with the — global financial crisis that the approach was not appropriate, and alignment towards discount factors associated with physical collateral of the IRSs was needed.
Post crisis, to accommodate credit risk, the now-standard pricing framework is the multi-curves framework where forecast -IBOR rates and discount factors exhibit disparity. Note that the economic pricing principle is unchanged: As regards the rates forecast, since the basis spread between LIBOR rates of different maturities widened during the crisis, forecast curves are generally constructed for each LIBOR tenor used in floating rate derivative legs.
Regarding the curve build, under the old framework a single self discounted curve was "bootstrapped" , exactly returning the prices of selected instruments.
Under the new framework, the various curves are best fitted — as a "set" — to observed market data prices, one for discounting, one for each forecast curve as below. See   . The complexities of modern curvesets mean that there may not be discount factors available for a specific -IBOR index curve. These curves are known as 'forecast only' curves and only contain the information of a forecast -IBOR index rate for any future date. Some designs constructed with a discount based methodology mean forecast -IBOR index rates are implied by the discount factors inherent to that curve:.
During the life of the swap the same valuation technique is used, but since, over time, both the discounting factors and the forward rates change, the PV of the swap will deviate from its initial value.
Therefore, the swap will be an asset to one party and a liability to the other. Swaps are marked to market by debt security traders to visualize their inventory at a certain time. Interest rate swaps expose users to many different types of financial risk.
Predominantly they expose the user to market risks. The value of an interest rate swap will change as market interest rates rise and fall. The euro was established by the provisions in the Maastricht Treaty. In order to participate in the currency, Member States are meant to meet strict criteria such as a budget deficit of less than three per cent of their GDP, a debt ratio of less than sixty per cent of GDP, low inflation, and interest rates close to the EU average.
In the Maastricht Treaty, the United Kingdom and Denmark were granted exemptions per their request from moving to the stage of monetary union which would result in the introduction of the euro. The name euro was devised on 4 August by Germain Pirlot, a Belgian Esperantist and ex-teacher of French and history,and officially adopted in Madrid on 16 December Due to differences in national conventions for rounding and significant digits, all conversion between the national currencies had to be carried out using the process of triangulation via the euro.
The definitive values in euro of these subdivisions which represent the exchange rates at which the currency entered the euro are shown at right. The rates were determined by the Council of the European Union,based on a recommendation from the European Commission based on the market rates on 31 December The European Currency Unit was an accounting unit used by the EU, based on the currencies of the Member States; it was not a currency in its own right.
They could not be set earlier, because the ECU depended on the closing exchange rate of the non-euro currencies principally the pound sterling that day. The procedure used to fix the irrevocable conversion rate between the drachma and the euro was different, since the euro by then was already two years old. While the conversion rates for the initial eleven currencies were determined only hours before the euro was introduced, the conversion rate for the Greek drachma was fixed several months beforehand.
The currency was introduced in non-physical form traveller's cheques, electronic transfers, banking, etc. Their exchange rates were locked at fixed rates against each other, effectively making them mere non-decimal subdivisions of the euro. The notes and coins for the old currencies, however, continued to be used as legal tender until new euro notes and coins were introduced on 1 January The changeover period during which the former currencies' notes and coins were exchanged for those of the euro lasted about two months, until 28 February The official date on which the national currencies ceased to be legal tender varied from Member State to Member State.
The earliest date was in Germany where the mark officially ceased to be legal tender on 31 December , though the exchange period lasted for two months more. Even after the old currencies ceased to be legal tender, they continued to be accepted by national central banks for periods ranging from several years to forever the latter in Austria, Germany, Ireland and Spain. The earliest coins to become non-convertible were the Portuguese escudos, which ceased to have monetary value after 31 December , although banknotes remain exchangeable until These countries comprise the "eurozone", some million people in total.
Estonia will join in With all but two of the remaining EU members obliged to join, together with future members of the EU, the enlargement of the eurozone is set to continue further. Together this direct usage of the euro outside the EU affects over 3 million people.
It is also gaining increasing international usage as a trading currency, in Cuba,North Korea and Syria. There are also various currencies pegged to the euro see below. In Zimbabwe abandoned its local currency and used major currencies instead, including the euro and the United States dollar.
Use as reserve currency Since its introduction, the euro has been the second most widely held international reserve currency after the U. The share of the euro as a reserve currency has increased from The euro inherited and built on the status of the second most important reserve currency from the German mark.
The euro remains underweight as a reserve currency in advanced economies while overweight in emerging and developing economies: The possibility of the euro becoming the first international reserve currency is now widely debated among economists. Former Federal Reserve Chairman Alan Greenspan gave his opinion in September that it is "absolutely conceivable that the euro will replace the dollar as reserve currency, or will be traded as an equally important reserve currency.
Currencies pegged to the euro Outside the eurozone, a total of 23 countries and territories that do not belong to the EU have currencies that are directly pegged to the euro including 14 countries in mainland Africa CFA franc and Moroccan dirham , two African island countries Comorian franc and Cape Verdean escudo , three French Pacific territories CFP franc and another Balkan country, Bosnia and Herzegovina Bosnia and Herzegovina convertible mark.
On 28 July , Sao Tome and Principe signed an agreement with Portugal which will eventually tie its currency to the euro. With the exception of Bosnia which pegged its currency against the German mark and Cape Verde formerly pegged to the Portuguese escudo all of these non-EU countries had a currency peg to the French Franc before pegging their currencies to the euro.
Pegging a country's currency to a major currency is regarded as a safety measure, especially for currencies of areas with weak economies, as the euro is seen as a stable currency, prevents runaway inflation and encourages foreign investment due to its stability. Within the EU several currencies have a peg to the euro, in most instances as a precondition to joining the eurozone. In total, over million people in Africa use a currency pegged to the euro, 25 million people outside the eurozone in Europe and another , people on Pacific islands.
There are two models, both proposed by Robert A. Mundell himself advocates the international risk sharing model and thus concludes in favor of the euro. However, even before the creation of the single currency, there were concerns over diverging economies.
Yet the chances of a state leaving the euro, or the chances that the whole zone would collapse, are extremely slim.
Transaction costs and risks The most obvious benefit of adopting a single currency is to remove the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. For consumers, banks in the eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments e.
The absence of distinct currencies also removes exchange rate risks. The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals that invest or trade outside their own currency zones. Companies that hedge against this risk will no longer need to shoulder this additional cost. This is particularly important for countries whose currencies had traditionally fluctuated a great deal, particularly the Mediterranean nations.
Financial markets on the continent are expected to be far more liquid and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the eurozone.
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