Basics of Currency

What is currency?
Currency nothing but the fact or quality of being generally accepted for use in a particular country which used as a medium of exchange for trading goods and services which are accepted either in the form of coins or paper currency as designated by the respective country administration or government. The central bank has sole rights to issue money for circulation like Reserve Bank of India in India. Each and every country or group of states are having its own currency such as India currency is “Rupee”, America currency is “Dollar” but there is some exception for country currency like many of the European countries uses currency as “Euro”. Some countries have declared foreign currency to be legal tender in their own country. For example, El Salvador and Panama allow the use of the U.S. dollar as legal tender.

Advantages:

  • Currency as a unit for the medium of exchange which costs nothing to the governments and very economical.
  • For metallic coins, we can avoid wear and tear too.
  • Fiat currency is durable and portable.
  • By regulation, currency is more stable for the transaction and homogenous
  • Very cheap remittance from one place to another place
  • The advantage to financial institutions such as banks for regular transaction and business

Disadvantages:

  • The possibility of damage to the major thing which is to be considered in fiat currency.
  • No value if it crosses country borders for the transaction
  • The possibility of fake currency printing to infuse.

What is money?
Money is nothing but the value included in between trade. It does not have a shape, a particular unit of measure. It changes from product to product, goods to services and service to goods. The lack of transferability of bartering for goods, as you can see, is tiring, confusing and inefficient
For example: in earlier days, to exchange goods civilians are used raw gold, silver, and other precious metals or products which they have like “to get one bag of rice from another person, has to give two cattle or any other. In other words, like a barter system goods in an exchange with goods.
Currency is designated by the unit of measure for value, i.e., money.

Advantages:

  • Money market accounts pay higher interest rates than other types of bank accounts.
  • Central bank insures money market accounts up to the limit for each account, making them low-risk and safe investments.
  • Account holders can easily access their money market accounts through ATMs, transfers, and checks.
  • In case of T-bills and commercial instruments easily matured on expiry.
  • Banks, however, put a limit on the number of transactions and transfers per month.

Disadvantages:

  • Financial institutions require account holders to maintain a minimum balance in their money market accounts.
  • Commerce Bank’s Premium Money Market Account specifies an average daily balance.
  • Most money market accounts allow only a limited number of monthly withdrawals and transfers as per banking regulations.
  • Commerce Bank’s Premium Money Market Account allows up to 3 to 5 transfers or withdrawals per month based on rural /urban/metro place.
  • This poses an inconvenience to a customer who needs to make an emergency withdrawal that will exceed the number of withdrawals permitted.
  • A variable and fluctuating interest rate applies for a money market account.
  • The interest rate depends on changes in the overall market interest rates.
  • Banks and other depository institutions offering money market accounts established fees for account maintenance, transactions and other financial services which reduce the value of the account.

What is Money Market?
A section of the financial markets where financial instruments are highly liquid and short-term maturities, which are having a maturity period is one year or less for buying and selling of securities such as T-bills, banker acceptances, deposits, certificate of deposits, bills of exchange, repurchase agreements, commercial papers, asset backed securities, etc., Trading in money market is done over the counter and is wholesale. The instruments bear differing maturities, currencies, credit risks, and structure and thus may be used to distribute exposure.

Advantages:
The high rate of interest:
Money market accounts pay higher interest rates than other types of bank accounts, including passbook savings accounts and regular savings accounts, provided they maintain the minimum balance.
The interest rate is tiered, compounded and credited monthly so that a money market account accrues more profit as the account balance increases.

Low Risk:
Central bank insures money market accounts up to the limit for each account, making them low-risk and safe investments.
This makes the account popular with investors as it protects them against loss of deposit.

Easy Access:
Account holders can easily access their money market accounts through ATMs, transfers, and checks.
Banks, however, put a limit on the number of transactions and transfers per month.

Disadvantages:
Balance requirement:

Financial institutions require account holders to maintain a minimum balance in their money market accounts.
Commerce Bank’s Premium Money Market Account specifies an average daily balance.

The limited number of withdrawals and transfers:
Most money market accounts allow only a limited number of monthly withdrawals and transfers as per banking regulations.
Commerce Bank’s Premium Money Market Account allows up to 3 to 5 transfers or withdrawals per month based on rural/urban/metro place
This poses an inconvenience to a customer who needs to make an emergency withdrawal that will exceed the number of withdrawals permitted.

Interest Rate Fluctuation and Other Fees:
A variable and fluctuating interest rate applies for a money market account.
The interest rate depends on changes in the overall market interest rates.
Banks and other depository institutions offering money market accounts established fees for account maintenance, transactions and other financial services which reduce the value of the account.

What is the currency market?
A market for the purpose of active trading and exchange of the currency throughout the world which is a very large network interconnected to the markets and countries central banks.

What is Forex Markets?
The foreign exchange market is the market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.

Example:INR/USD, USD/EURO, USD/POUND, EURO/YEN etc.

How does it work?
On the Forex Market, one currency is exchanged for another. The single most important thing on the FOREX market is the exchange rate between two currencies (a currency pair).

How do you trade in forex?
The INR/USD rate represents the number of USD one INR can buy. If you think the RUPEE will increase in value against the US Dollar, you buy RUPEE with US Dollars.
If the exchange rate rises, you sell the RUPEES back, and you cash in your profit.

What is the difference between money, currency and forex markets?
Money Market:

  • Money markets are the financial markets where short-term financial assets are bought and sold. The financial assets, such as stocks, deposits, and bonds that trade in these markets will mature in one year or less.
  • Over a billion dollars in transactions take place in these markets daily.
  • Financial institutions, corporations, and government treasury are active in the money markets as they adjust their short-term portfolios.

Currency markets:

  • A place where currencies are traded, including foreign currencies. It’s a collective market traded among countries based on their norms, it is made up of the thousands of the trading floors.
  • The profits and losses will be depending on the speculation among countries and change in price movements.
  • The spot exchange rate is the price of a currency to be delivered now, rather than in the future. The forward exchange rate will be a fixed price given for buying a currency today to be delivered in the future.

Foreign markets:

  • Foreign exchange markets facilitate the trade of one foreign currency for another.
  • Most exchanges are made in bank deposits and involve U.S. dollars.
  • More than a trillion dollars in foreign exchange trades take place every day.
  • Foreign exchange dealers mostly handle these transactions.
  • Businesses, financial institutions, governments, investors, and individuals use the foreign exchange markets to adjust their currency holdings.

What is cryptocurrency?
Cryptocurrency is nothing but a subset of digital currency or virtual currency which has no physical representation. Simply, it is a medium of exchange in a digital form of encryption.

Leave a Reply

Your email address will not be published. Required fields are marked *

Latest News & Article

Financial Advisory Services at Your Door Step.

If your occcupied don't have time to plan your financial investment we are here to guide.