Foreign Exchange Market
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. Retail traders (small speculators) are a small part of this market. They may only participate indirectly through brokers or banks and may be targets of forex scams.
Foreign exchange markets are unique in the financial world in that exchange rates are highly sensitive to a great variety of factors, many different types of investors have access to the market, the market is very liquid, and currencies are traded around the clock. The main international banks continually provide the market with both bid (buy) and ask (sell) offers.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.
Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates. Sometimes they are able to profit from arbitrage.
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.
Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.
An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves, to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high - that is, to trade for a profit. Nevertheless, central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives, however. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992-93 ERM collapse, and in more recent times in South East Asia.
Investment Management Firms
Investment Management firms (who typically manage large accounts on behalf of customers such as pension funds, endowments etc.) utilise the Foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the 'spot' market in order to pay for, and redeem, purchases and sales of foreign equities. Since these transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximisation.
Some investment management firms also possess specialist Currency Overlay units, which have the specific objective of managing clients' currency exposures with the aim of generating profits whilst limiting risk. Whilst the number of dedicated currency managers is quite small, the size of their assets under management (AUM) can be quite significant, which can lead to large trades.
Foreign Exchange Market
Ebony, Jan, 2006 by Shirley Henderson
1. Be real about what you spend.
Gary Harris, a financial advisor and owner of GH Asset Management, LLC, in Chicago, says his clients usually know how much they spend for monthly expenses--such as their mortgage, car payment and insurance. However, many have no idea how much they are paying on what he calls "entertainment expenses." For example, if a couple eats out five days a week and spends $10 each, that adds up to a whopping $400 per month, money that can be set aside for investment planning.
Financial experts advise people to make a cash-flow projection so that they will know what they are spending on discretionary items. Every month use money management software, which can help track your spending habits.
2. Consult with an expert.
A financial professional can be helpful when you are trying to manage your money successfully. They can customize a financial plan for you and your needs and lifestyle, in addition to providing you with a credit analysis. Harris helped one client pay off a $30,000 credit card debt, which is a huge liability for most people.
3. Take control of your debt.
In January, most of us wish that we had cut up our credit cards because we overspent during the holidays. An option to a credit card is a debit card, which allows the money to be deducted directly from your bank account, so you are less likely to overspend. If you are overwhelmed by debt, seek help through a credit repair company. But make sure the company you choose is a not-for-profit company that offers debt management services and/or personal counseling for a small fee. Beware of scam credit repair companies that over charge customers.
4. Hake saving automatic.
How many times have you heard people complain about not being able to save money, even though they work every day? Financial experts suggest having the funds for savings deducted from your payroll check and placed into an account that you cannot easily access, such as an annuity account or CD. Start with saving 5 percent of your income and build up to 10 percent.
Many banks have automatic transfer forms that can start the financial ball rolling.
5. Consider the future.
One in three African-Americans has a single source of income and likely will rely on Social Security benefits when they retire from their jobs. That is usually not enough. African-American women especially should actively save money in a 401k account, which many companies offer, or an IRA account. Since women tend to outlive men and are more likely to face poverty, they usually lack the assets they will need to live comfortably after retirement. "We call them junior bag ladies," financial advisor Gary Harris says of women who don't set aside retirement funds. "They are not picking out of garbage cans now, but in the future many definitely will graduate to being bag ladies."
While the bag-lady scenario may seem both grim and extreme, it's not completely out of line. Money problems can snowball into serious debt due to overspending and lack of planning. However, there are several resources available to help you get your financial house in order. If you are unable to do it alone, hire a financial advisor. Also, some banks offer services designed to help clients get financially stable. By taking the right steps, you can accumulate money in the bank and keep creditors off your back.
January 18, 2005 - by Crown Financial Ministries
The primary reason couples choose to refinance their home mortgages is because of low mortgage interest rates. However, before refinancing, they should be aware that sometimes they may end up paying more, not less, for a mortgage because lenders charge new types of fees, and loan arrangements can be complex.
When to refinance
If you’re planning to live in the house for more than five years and don’t expect a significant increase in your salary (cost of living increase or slightly more), moving from a higher interest rate to a lower one or changing from an adjustable interest rate to a fixed-interest-rate mortgage could be worth considering. The most popular mortgages are conventional fixed-rate 15 to 30 year loans.
For homeowners who aren’t planning to stay in their homes for more than five years or who can look forward to big salary increases, spending the money to refinance may not be the wisest choice.
Adjustable rate mortgages (ARMs)
If you are buying a home and do not plan to stay in the home for more than five years, you might want to consider an adjustable-interest-rate mortgage.
First-year payments on ARMs are generally much lower than conventional fixed-rate mortgages, as long as interest rates stay down. The fear that interest rates could rise, causing your monthly mortgage payments to rise, can be partially offset by taking an adjustable rate mortgage with annual and overall limits on interest rate increases. The most common interest rate limit offered by mortgage lenders is 2 percent annually with a maximum of 5 percent over the life of the ARM.
If you choose an ARM, make sure the limits are in writing and are spelled out clearly in the mortgage contract. In addition, check to see if there’s an interest floor. Some ARMs do not decrease if interest rates drop. Before signing the agreement, be sure mortgage rates will be reduced if interest rates drop.
Before refinancing, figure out exactly how much it is going to cost you. The advertised interest rate seldom tells the whole story. Additional charges and fees can raise the cost of refinancing to as much as 20 percent.
The biggest refinancing expense is prepaid interest, called discount points. It’s typical for discount points to be 1 to 3 percent of the requested loan amount, but they can go as high as 10 percent. When comparing interest rates, always include this cost. A low-interest loan with high points can easily cost more than a higher-interest-rate loan with lower points. Ideally, refinancing would cost 0 points.
The mortgage company’s refinancing fees can also be expensive. Some lenders charge a flat $250 to $700 for an application fee; others charge a percentage. Those that charge a percent of the loan generally charge between 2 and 4 percent. Therefore, a 2 percent application fee for a $100,000 loan would be $2,000. If the fee is nonrefundable, you stand to lose a substantial amount of money if the mortgage refinancing isn’t approved. In addition, closing costs can vary dramatically from one lender to another. Generally, lenders who charge closing costs charge from 2 to 10 percent of the value of the loan. If at all possible, do not roll these fees into the loan. By doing so, you will be paying for them over the duration of the loan. Pay for these fees out-of-pocket.
More refinancing cautions
There are four primary issues about which you should get clarification before you agree to a refinancing contract.
Negative amortization. Negative amortization of an adjustable loan can be devastating when you decide to sell the house. If your mortgage rates remain fixed but the interest rate rises, less of your monthly payment is used to pay off the principal. If rates rise a lot, the higher interest due is added to the principal. Then, when the house is sold, you might end up owing the mortgage company more than what was originally borrowed.
Change in mortgage collection company. If your mortgage company sells your loan to another lender, there’s a chance the new company will send a payment book automatically. So, you begin making payments to your new lender, instead of the originator of the loan. However, be sure the originator has “signed-off” or else you may be perceived as defaulting on the original loan. If you see any change in your mortgage processing, contact your originator immediately for an explanation in writing.
Private mortgage insurance. This insurance is generally required only when down payments of less than 20 percent are made on the property. Charges for this insurance are usually .5 to 2 percent initially and then .33 to 2 percent annually. To prevent this expense, be sure you are refinancing 80 percent or less of the appraised value of the house.
Prepayment penalties. This expense will show up when you sell your home. A prepayment penalty means that when you sell you will have to pay three to six months worth of interest before the deal is closed. If you have a prepayment penalty in your refinancing agreement and move in five years or less, all of your profits from the sale of the house could be dissolved by a prepayment penalty.
As interest rates continue to fall, many homeowners are becoming anxious to refinance their home mortgages in order to capitalize on the interest savings. However, before finalizing any refinancing agreement, be sure you know the total amount that you will be paying for the refinancing, how much the new mortgage will cost you monthly, and how much it will cost over the length of the loan.
It is not always a lack of money that creates financial pressure. Many times it is simply a matter of attitude. If there is a right attitude toward money, freedom from financial bondage can be assured. God did not say that money and material things were problems; money is neither good nor bad. It is the use of money and the attitude toward money that is the problem. Therefore, Jesus regularly warned His followers to guard their hearts against greed, ego, and pride, because Satan can control God’s people with these emotional tools. In the area of finances, God’s people are extremely vulnerable. As such, they need to be encouraged to follow the necessary steps that will ensure money management according to God’s plan, thus assuring financial freedom.Transfer ownershipGod has designated the most difficult step, transfer of ownership, as the first step. Once this has been accomplished, all other steps will fall into place.As Christians, God expects that all possessions be transferred to Him. Since we can’t literally place everything into His hands, this transfer becomes an act of faith. In essence, it means accepting the fact that God owns it all. Transferring ownership to God means that God owns all that we consider ours: clothes, car, home, family, income, debts, present, and future. Once ownership is transferred, God can begin to lead out of debt and into financial freedom. We then become stewards and managers of what belongs to Him.So, if God is the owner of everything in Christians’ lives, He can be trusted to change unhealthy spending habits (especially the abuse of credit cards) that cause debt, anxiety, and fear of the future. The key to maintaining this relationship is to understand properly the definition of stewardship. A steward is someone who manages the property of another. As His stewards, we are responsible for managing His property in a way that will please Him. God will not force His will on us, but if we realize our responsibility and transfer everything to Him, He will keep His promise and provide for each and every need. The first step in achieving financial freedom is to realize that since God is in complete control, all that we are, do, have or ever will have must be transferred to Him. Get out and stay out of debtThere are many ways to get into debt but%
Besides the long string of numbers that identify your account, there is a short little series of numbers that makes up your card's expiration date. Most of us don't even pay any attention to that date, but you can bet that the credit card approval network knows exactly when your card expires, and for good reason. Actually, there are several reasons, so let's take a look.Top Reasons Why a Credit Card Has an Expiration DateOne of the most simple and uncomplicated reasons the credit card will expire is that the magnetic strip will not last forever. Although the plastic card itself is virtually indestructible, the magnetic strip is a little touchier and will eventually wear out. When that happens your card will no longer be readable by credit card terminals and ATMs.Some institutions use an expiration date as a way of reconnecting with the cardholder. It gives the company and the user the opportunity to get together and discuss any issues or complaints that the customer may have. It also allows the card company to appear to care about you as a customer. They will send you a friendly reminder, kindly offering you the chance to renew with your same comfortable company. With all the competition out there, comfort and history can go a long way in keeping customers.Cardholder security is another reason. This allows the company to check up on you and make sure you are who you say you are and nothing has changed. With identity theft being what it is today, this is a good thing. Some people have had credit cards opened in their names without their knowledge and charges have been made. If the card expires, the company will contact you and possibly warn you about current fraud trends.The company may use the expiration date as a way to remind you they are there. For people who don't use their cards very often, this can be a gentle reminder of just what's in their wallet and, hopefully, remind you to use it.Nearing The Expiration DateIt is actually quite easy to renew your card. About a month before your current card actually expires, a new one will suddenly appear in the mail to replace your expired one. This is great if you're in town. If you are going to be traveling, check your card before you go. If it will expire before you get back, call ahead and get your new one before you leave.Once you have your new card, read the material that came with it. This may very well include a list of new and improved terms. If you find these terms to be new, but not improved, contact the card company. Do not use the card until you have received verification that the terms have been changed to your approval. If they refuse, you can always cancel the card. Trust me, it won't take long to find a replacement. About the author:Keith Baxter made it his mission after college to educate as many people as possible to the advantages and disadvantages of credit through a widespread re-education initiative. You can find out more about Keith and what he's up to at http://www.credit-card-debt-consolidation.net.