The pages of the tradernew.pro website talk a lot about how to trade the financial markets and what needs to be done to make this trade profitable. Most of the time we are of course talking about forex trading. But to understand this topic in detail, you must have the fundamental concepts. What is a currency, what types of currencies exist and what is it used for in the Forex market?
- Currency concept.
- Division into types: currencies in the world economy.
- Coin classification.
- Types of exchange rates.
According to philologists, the word “currency” has Italian roots and comes from the word “valuta”, which is interpreted as “the value of something”, “paper money or a coin”. According to its semantic meaning, currency is money, whose main purpose is to fulfill the function of legal tender. The form of operation of the currency (currency) can be cash or non-cash.
There is another approach to the interpretation of the term “currency”. According to this approach, a coin is a monetary unit, whose main function is to measure money. Can be used for:
- Quantification of prices of goods or services.
- Cash settlements between parties that enter into commodity-money relationships.
- Establishment of the nominal value of banknotes.
- Determining the value of currencies used by other states.
Today, most brokers offer the ability to trade currency pairs on the Forex market. There are usually more than 60 different currencies available to trade.
Division into types: currencies in the world economy
The currencies of different countries of the world are generally divided into types. The currencies can be of one type or another, depending on the approach used for said division.
The main types of world currencies are divided:
- For belonging to the state that issues money in circulation :
- National currency. This is a means of payment used on the territory of a separate state. The state independently through its central bank implements monetary policy and issues the required number of banknotes in circulation.
- Foreign currency. This means of payment is legal on the territory of a foreign state, which issues its own banknotes in circulation and can independently establish the rules for handling its currency.
- Collective currency. This is a common currency for a limited number of countries, accepted by them for mutual agreements.
- For the conversion degree of freedom :
- Freely convertible currency. This type includes coins that can be freely exchanged for any currency of another country.
- Partially convertible currency. This type of currency is subject to restrictive measures by the issuing state. The restrictions imposed by the state, as a rule, are aimed at preventing the flight of foreign currency and precious metals from the country. In this case, the rotation of the converted currency is carried out under the control of the State, which issues the corresponding permits.
- Non-convertible currency. In this case, the currency can only be used in the country of the issuer. No currency exchange transactions are carried out with said monetary unit.
- Provided with precious metals :
- Gold-backed currency. Coin, each unit of which can be exchanged for a fixed amount of gold, belongs to this type. The international gold standard is the main criterion for the functioning of a currency backed by gold.
- Silver backed currency. The Silver Monetary Standard has lost its meaning and is currently not in force.
- A bimetallic coin backed by two precious metals. Usually gold and silver. Currently, no country uses bimetallism.
- Paper money – without provision with precious metals.
- For exchange rate stability:
- Hard currency. This type of currency differs in that its rate relative to other currencies is constantly high for a long time and is not prone to a significant drop.
- A soft currency prone to significant exchange rate fluctuations.
- For the territory of circulation:
- National currency. Only one country uses this currency as a means of payment.
- regional currency. The area of use of such money is limited to a certain area or region.
- private currency. Private money is prohibited in most countries. But there are countries that give private banks permission to issue paper money.
- By importance in world monetary circulation:
- The world (global) currency is an international means of payment, which is most often used in mutual agreements between different countries.
- reserve currency. This currency is recognized by all countries and used in the formation of their gold and foreign exchange reserves.
- Leading (dominant) currency. This is the currency most used in mutual agreements between commercial entities.
- By application:
- Payment currency used for the foreign trade transaction. It can be national or foreign currency. Their types can be any and chosen by agreement between the seller and the buyer. Usually, it is these currency pairs that are offered for Forex trading.
- The currency of the price at which the product is sold.
- The currency of the check or bill of exchange used to pay for goods or services.
- The currency of the value that confirms property rights.
- Intervention currency with which the national bank influences the monetary value of the national currency.
- The offsetting currency used to account for mutual obligations and rights between the participating countries, signatories to the offsetting currency agreement.
- Due to the presence of other currencies used in monetary circulation:
- The currency is the main one, mandatory to be accepted on the territory of a particular state.
- Parallel currency. There are countries where various means of payment can be used. Along with the main currency, a parallel currency in free circulation is used. The types of such means of payment are approved by law.
- substitute currency. From a legal point of view, substitute means of payment are not always legal, but in fact they are used quite frequently. An example is cryptocurrency.
- For the period of validity:
- Permanent currency.
- Currency entered for a specific period.
- By the form of existence:
- Currency having the physical form of its existence in the form of bank treasury bills, banknotes, or coins of various denominations.
- Cashless currency.
- According to its actual state today:
- Actually existing currency, whose legality of operation is confirmed by the issuing state.
- Historical coin. This type includes all coins that have been withdrawn from circulation and are not legal tender.
Coin classification is carried out in accordance with the requirements of the international standard ISO 4217. According to this standard, the currency of any country is assigned a code consisting of three numbers and / or letters of the English alphabet. All these codes are included in the coin classifiers, which in turn can be:
- International standards.
- National standards.
- Industry standards.
The basic ISO 4217 standard includes the following information:
- Currency name.
- Currency alphabetic code.
- Digital currency code.
- Information on the fractionality of the monetary unit.
- List of countries in which this currency is legal tender.
types of exchange rates
Now it is worth dwelling in more detail on such a concept as the exchange rate. What is it and what exchange rates are found in practice?
The exchange rate is the relative value of one country’s currency to the value of another country’s currency.
The exchange rate also has its own rates:
- Fixed rate: when the price of a certain currency is rigidly linked to the price of another currency.
- Floating Rate: When the price of a currency is determined by demand and available supply.
In forex trading in currency pairs, currency is a commodity. Therefore, only those currencies whose exchange rate changes depending on market conditions can be a trading asset.
So, today we are examining in detail such a concept as “currency”, what are the types of currencies in Russia, the main currency, as you know, is the ruble. It is he who has the legal tender. The use of other currencies is not allowed on the territory of the Russian Federation. But at the same time, it should be noted that the Russian ruble has a floating exchange rate and is actively traded on the Forex market. If you wish, you can take advantage of this circumstance and earn money with the exchange difference.
Answers to popular questions about types of coins.
What are the main types of currencies? The division of coins by types is divided into categories according to their belonging to the state, according to security, according to degree of conversion, according to territory of circulation, and others. The main types of coins are considered in terms of belonging to the state, and are divided into state, foreign and collective coins. The state currency is the country’s main means of payment, foreign currency is an object of conversion, and the collective currency unites several countries in a single financial plane. What are the different types of currencies supported? Previously, currencies were exclusively backed by precious metals such as gold and silver.After the introduction of a single gold standard, the silver supply went out of use. Today, the provision of currency is possible with any state reserves, starting with gold, ending with stocks and bonds of state importance. In addition, domestic banks often provide the currency with financial and non-financial assets. What is a collective currency? A collective currency is a banknote used on the territory of several countries and accepted as a means of payment on this plane. The main example of a collective currency is the euro, the currency used in the territory of the European Union, and it does not have a single central country that has a monopoly on the issuance of banknotes.The euro is backed by gold reserves and other assets from all the countries in the union. Are there differences in the use of different types of currencies? Different types of coins can be used on different planes, and they are used according to the convention for their formation. So, national currencies are used exclusively for settlements within the state, International (collective) currencies can be used on the territory of several countries, as well as for calculation in an international format. Private currencies (allowed in some countries) are payment systems within a single financial structure. What does the exchange rate depend on?The exchange rate depends on several factors, such as: the economic and political situation within the state, the demand for foreign currency in the international format, the availability of foreign exchange reserves, as well as the level of inflation and deflation within the country. Some currencies are backed by futures and financial assets that confirm the value of the currency. What does the exchange rate depend on? The exchange rate depends on several factors, such as: the economic and political situation within the state, the demand for foreign currency in the international format, the availability of foreign exchange reserves, as well as the level of inflation and deflation within the country. Some currencies are backed by futures and financial assets that confirm the value of the currency.What does the exchange rate depend on? The exchange rate depends on several factors, such as: the economic and political situation within the state, the demand for foreign currency in the international format, the availability of foreign exchange reserves, as well as the level of inflation and deflation within the country. Some currencies are backed by futures and financial assets that confirm the value of the currency.