Essentially, an exchange rate is a measure of the value of a currency when it is traded for another currency. The most common type of exchange rate is the floating exchange rate, where the value of currencies can vary depending on the law of supply and demand. A floating exchange rate means there is no government intervention to change the value of the currency. However, countries can choose the type of exchange rate they wish to use in order to change the value of that country’s currency.
Fixed or Pegged Exchange Rate
A fixed or pegged exchange rate is an exchange rate that evaluates a currency compared to one currency, several currencies or against a particular measure of value like gold prices. This type of exchange rate is most commonly used to stabilize the value of a currency against the currency which it is compared to.
The Use of Multiple Exchange Rates
The multiple exchange rate system is exactly as it sounds – the use of multiple exchange rates to value a specific currency. Therefore, there are several exchange rates that are used in transactions with foreign countries and each transaction is completed with a different exchange rate. This type of exchange rate system is comprised of a combination of floating and pegged exchange rates. Essentially, this means that non-essential exports and imports use a floating exchange rate that is based on market forces while essential exports and imports use a pegged exchange rate.
Rigidly Fixed Exchange Rate
A rigidly fixed exchange rate is a type of fixed exchange rate that makes use of the gold standard, dollarization and currency boards and unions. When the gold standard is used, the exchange rate is based on the gold reserves in that country. Currency unions are made up of several countries that eliminate their individual currencies and opt to use a single currency – eliminating exchange rates between the currency union members. A currency board system involves the backing of every unit of currency by the same amount of reserve currency – a useful anti-inflation instrument. Dollarization simply means that one country decides to use the currency of another country. As an example, the U.S. dollar is used in Ecuador and Samoa.
Managed Exchange Rate
A managed exchange rate means that the government of a particular country has some influence on exchange rates that otherwise would be floating. This means that the exchange rate can fluctuate but the government prevents any excessive depreciation or appreciation of the currency.
What do you think about these types of exchange rates? Which exchange rate types do you think are beneficial or harmful? Please leave your comments below.
Tuesday, August 28, 2012
Daily Market Overview 27.08.2012
Today both U.S. and European indices rose, as investors are having expectations for further stimulus of the economy from the world’s top policymakers. Investor’s attention is focused on Friday’s meeting at Jackson Hole, Wyoming, where there are speculations that the Federal Reserve, will provide more support to the economy and that the European Central Bank (ECB) also will act soon. Euro holds its recent gains against the U.S dollar even though German business sentiment came in worse than expected in. On that note the ECB hopes that Germany will provide more to support to deal with the European debt crisis.
The DJ30 closed at 13,124.67, declining 33.3 points (-0.25%), SPX500 closed at 1,410.44, declining 0.69 points (-0.05%) and the NASDAQ closed at 2,782.55, gaining 4.5 points
(0.16%) in today’s trading.
The CAC40 closed at 3,462.83, gaining 29.62 points (0.86%), FTSE100 closed at 5,776.60, gaining 0 points (0.00%) and DAX40 closed at 7,047.45, gaining 76.38 points (1.10%).
Apple Inc. (AAPL):
On Friday 24.08.2012, Apple won an important Patent Suit against rival and partner Korean Company, Samsung. A verdict from a U.S jury found that Samsung had copied critical features of the iPhone and iPad. Apple was rewarded with $1.05 billion in damages and the stock rise to record highs on Monday’s session. Apple is now seeking bans on eight older model Samsung Smartphones, including Galaxy S2.In addition to this, on Friday the U.S. International Trade Commission (ITC) found that Apple didn’t violate Motorola’s patents. After winning the legal litigation, Apple’s stock rose. Furthermore the company announced that they would try to reduce the cost on the iPhone, making it cheaper for consumers. Both legal victories by Apple increased even more investor’s confidence in Apple’s growth and the price rose to new highs closing at $675.68.
The DJ30 closed at 13,124.67, declining 33.3 points (-0.25%), SPX500 closed at 1,410.44, declining 0.69 points (-0.05%) and the NASDAQ closed at 2,782.55, gaining 4.5 points
(0.16%) in today’s trading.
The CAC40 closed at 3,462.83, gaining 29.62 points (0.86%), FTSE100 closed at 5,776.60, gaining 0 points (0.00%) and DAX40 closed at 7,047.45, gaining 76.38 points (1.10%).
Apple Inc. (AAPL):
On Friday 24.08.2012, Apple won an important Patent Suit against rival and partner Korean Company, Samsung. A verdict from a U.S jury found that Samsung had copied critical features of the iPhone and iPad. Apple was rewarded with $1.05 billion in damages and the stock rise to record highs on Monday’s session. Apple is now seeking bans on eight older model Samsung Smartphones, including Galaxy S2.In addition to this, on Friday the U.S. International Trade Commission (ITC) found that Apple didn’t violate Motorola’s patents. After winning the legal litigation, Apple’s stock rose. Furthermore the company announced that they would try to reduce the cost on the iPhone, making it cheaper for consumers. Both legal victories by Apple increased even more investor’s confidence in Apple’s growth and the price rose to new highs closing at $675.68.
STOCKS TO WATCH AT CLOSE ON TUESDAY
Stocks to watch on the Australian stock exchange at close on Tuesday:
ALL - ARISTOCRAT LEISURE LTD - up 19 cents at $2.76
Gaming machine supplier Aristocrat Leisure has reported a better-than-expected 40 per cent rise in first half net profit to $34.7 million.
ALS - ALESCO CORPORATION LTD - down 1.5 cents at $1.96
DLX - DULUXGROUP LTD - down one cent at $3.27
DuluxGroup has threatened to walk away from takeover talks with Alesco Corporation if the target company does not agree to resolve a dispute over the size of dividends in the deal.
BPT - BEACH ENERGY LTD - down five cents at $1.215
Oil and gas producer Beach Energy has forecast increased production in the year ahead after posting a significant rise in full year profit.
CRF - CENTRO RETAIL AUSTRALIA - up one cent at $2.10
Shopping centre owner Centro Retail Australia has posted a $223 million loss due to legal costs, lower property values and expenses relating to its recent restructure.
FLT - FLIGHT CENTRE LTD - up 10 cents at $23.70
Flight Centre's full year profit has increased by 43 per cent as it reaps the benefits of expansion around the world.
GFF - GOODMAN FIELDERS LTD - steady at 53.5 cents
GNC - GRAINCORP LTD - in trading halt, last traded at $9.85
Troubled food group Goodman Fielder has sold its oils business Integro for $170 million to a consortium made up of GrainCorp and Gardner Smith.
LLC - LEND LEASE GROUP - up nine cents at $8.20
More than 100,000 jobs and training for 500 apprentices and thousands of other workers will spin off from Sydney's Barangaroo development, Federal Skills Minister Chris Evans says.
SVW - SEVEN GROUP HOLDINGS LTD - up 45 cents at $8.05
Media and earthmoving machinery company Seven Group Holdings has more than doubled its full year profit but is cautious about China's growth and Australia's media industry.
UML - UNITY MINING LTD - up one cent at 12 cents
Tasmania's only gold mine at Henty has helped Unity Mining return to the black with a $12.9 million profit.
VAH - VIRGIN AUSTRALIA HOLDINGS LTD - steady at 48 cents
Virgin Australia has returned to profitability due to its growth in the corporate travel sector.
WES - WESFARMERS LTD - up 20 cents at $34.30
A Coles contractor is under fire for placing a job advertisement that said Indian and Asian people need not apply.
ALL - ARISTOCRAT LEISURE LTD - up 19 cents at $2.76
Gaming machine supplier Aristocrat Leisure has reported a better-than-expected 40 per cent rise in first half net profit to $34.7 million.
ALS - ALESCO CORPORATION LTD - down 1.5 cents at $1.96
DLX - DULUXGROUP LTD - down one cent at $3.27
DuluxGroup has threatened to walk away from takeover talks with Alesco Corporation if the target company does not agree to resolve a dispute over the size of dividends in the deal.
BPT - BEACH ENERGY LTD - down five cents at $1.215
Oil and gas producer Beach Energy has forecast increased production in the year ahead after posting a significant rise in full year profit.
CRF - CENTRO RETAIL AUSTRALIA - up one cent at $2.10
Shopping centre owner Centro Retail Australia has posted a $223 million loss due to legal costs, lower property values and expenses relating to its recent restructure.
FLT - FLIGHT CENTRE LTD - up 10 cents at $23.70
Flight Centre's full year profit has increased by 43 per cent as it reaps the benefits of expansion around the world.
GFF - GOODMAN FIELDERS LTD - steady at 53.5 cents
GNC - GRAINCORP LTD - in trading halt, last traded at $9.85
Troubled food group Goodman Fielder has sold its oils business Integro for $170 million to a consortium made up of GrainCorp and Gardner Smith.
LLC - LEND LEASE GROUP - up nine cents at $8.20
More than 100,000 jobs and training for 500 apprentices and thousands of other workers will spin off from Sydney's Barangaroo development, Federal Skills Minister Chris Evans says.
SVW - SEVEN GROUP HOLDINGS LTD - up 45 cents at $8.05
Media and earthmoving machinery company Seven Group Holdings has more than doubled its full year profit but is cautious about China's growth and Australia's media industry.
UML - UNITY MINING LTD - up one cent at 12 cents
Tasmania's only gold mine at Henty has helped Unity Mining return to the black with a $12.9 million profit.
VAH - VIRGIN AUSTRALIA HOLDINGS LTD - steady at 48 cents
Virgin Australia has returned to profitability due to its growth in the corporate travel sector.
WES - WESFARMERS LTD - up 20 cents at $34.30
A Coles contractor is under fire for placing a job advertisement that said Indian and Asian people need not apply.
PETSEC SHARES RISE 4%, PRODUCTION ON TRACK
Petsec Energy shares posted strong gains after the oil and gas producer said it expects to meet its full year production guidance after posting a $5 million first half loss.
Shares in the US-based company, which is involved in oil and gas exploration and production in the Gulf of Mexico and Louisiana, rose four per cent to 12.5 cents on Tuesday.
Petsec Energy Ltd posted a $US5.2 million ($A5.04 million) loss in the six months to June 30, after recording a $US31 million ($A30.02 million) profit in the previous corresponding period.
Net revenue after royalties was $US3.3 million ($A3.20 million), down 55 per cent from $US7.4 million ($A7.17) million in the period.
"The company expects to meet its previous production guidance for the full year of two billion cubic feet of gas equivalent (Bcfe)," Petsec said in a statement.
Petsec Energy produced 1,006 one million cubic feet (MMcf) of gas and 5,919 barrels of oil for the six months ended June 30, 2012 from its five producing fields in the Gulf of Mexico shelf and the Louisiana Gulf Coast.
During the first half Petsec drilled a third well on the Marathon gas/condensate field, and a shale oil test well in Alberta, Canada.
The company is continuing technical evaluations of shale oil project areas in the United States.
In a separate statement Petsec said its Main Pass and Chandeleur offshore gas fields had been shut down and all offshore personnel evacuated ahead of the approaching Hurricane Isaac.
The company expects its Marathon and Main Pass 270 fields will also be shut prior to the storm's arrival.
The hurricane is expected to pass through the Gulf of Mexico shelf as a Category One Storm.
Petsec added that its Marathon gas/condensate Field had been brought into production.
The company said it did not declare a dividend for the six months ended June 30, 2012.
Shares in the US-based company, which is involved in oil and gas exploration and production in the Gulf of Mexico and Louisiana, rose four per cent to 12.5 cents on Tuesday.
Petsec Energy Ltd posted a $US5.2 million ($A5.04 million) loss in the six months to June 30, after recording a $US31 million ($A30.02 million) profit in the previous corresponding period.
Net revenue after royalties was $US3.3 million ($A3.20 million), down 55 per cent from $US7.4 million ($A7.17) million in the period.
"The company expects to meet its previous production guidance for the full year of two billion cubic feet of gas equivalent (Bcfe)," Petsec said in a statement.
Petsec Energy produced 1,006 one million cubic feet (MMcf) of gas and 5,919 barrels of oil for the six months ended June 30, 2012 from its five producing fields in the Gulf of Mexico shelf and the Louisiana Gulf Coast.
During the first half Petsec drilled a third well on the Marathon gas/condensate field, and a shale oil test well in Alberta, Canada.
The company is continuing technical evaluations of shale oil project areas in the United States.
In a separate statement Petsec said its Main Pass and Chandeleur offshore gas fields had been shut down and all offshore personnel evacuated ahead of the approaching Hurricane Isaac.
The company expects its Marathon and Main Pass 270 fields will also be shut prior to the storm's arrival.
The hurricane is expected to pass through the Gulf of Mexico shelf as a Category One Storm.
Petsec added that its Marathon gas/condensate Field had been brought into production.
The company said it did not declare a dividend for the six months ended June 30, 2012.
Today's oil price
$95.99 per barrel
Daily change of 0.52 ( 0.54% )
Oil Quote Updated Aug-28-12 10:00 AM
Market Commentary - European Market Essentials
The Asian session saw any markets that were linked as beneficiaries of easing fall away today as markets pulled back expectations to match the realities of whether the Fed would unveil easing measures. Early weakness clues given in the US session were also compounded by growing fears that China would get worse before it got better.
Markets have priced in too much optimism of late which has seen traders finally question the likelihood of Central Banks delivering on what the market had led itself to believe would happen.
Most traders would agree that the bond buying initiative by the ECB should eventually see the light of day but not without the all clear from the German Constitutional Court on the 12th September and not without either Spain or Italy signing away its sovereignty for a full bailout. That attaches an element of time-risk that needs to be accounted for.
The likelihood that the Fed would want to mess with the current improving pockets of their economy by printing money and sapping any of the optimism that they are currently experiencing is very minimal.
So we are left with a meeting that will see more of the same from both camps. This means that the recent overshoot needs to be adjusted and is why we will see a continued softness over the next session or two. However, trader psychology is a strange thing and if past ‘pivotal’ meetings are anything to go by we should see a rally on those same markets a day or two out as the fear of missing out should this meeting be ‘THE ONE’ is just too much for one to resist.
GFT Markets currently see the FTSE down 20pts to 5756; the DAX down 40pts to 7007 and the CAC down 21pts to 3441 on Yesterday’s close.
Markets have priced in too much optimism of late which has seen traders finally question the likelihood of Central Banks delivering on what the market had led itself to believe would happen.
Most traders would agree that the bond buying initiative by the ECB should eventually see the light of day but not without the all clear from the German Constitutional Court on the 12th September and not without either Spain or Italy signing away its sovereignty for a full bailout. That attaches an element of time-risk that needs to be accounted for.
The likelihood that the Fed would want to mess with the current improving pockets of their economy by printing money and sapping any of the optimism that they are currently experiencing is very minimal.
So we are left with a meeting that will see more of the same from both camps. This means that the recent overshoot needs to be adjusted and is why we will see a continued softness over the next session or two. However, trader psychology is a strange thing and if past ‘pivotal’ meetings are anything to go by we should see a rally on those same markets a day or two out as the fear of missing out should this meeting be ‘THE ONE’ is just too much for one to resist.
GFT Markets currently see the FTSE down 20pts to 5756; the DAX down 40pts to 7007 and the CAC down 21pts to 3441 on Yesterday’s close.
Australian stocks closed just shy of their opening highs today, with defensive stocks leading the gains following a mixed finish on global share markets.
Australian stocks closed just shy of their opening highs today, with defensive stocks leading the gains following a mixed finish on global share markets. The All Ordinaries Index (XAO) finished higher by 14.1pts or 0.3pct to 4387, after hitting an intra-day high of 4391.9pts.
London was closed for a Bank holiday overnight, meaning there was no direction for our miners today with the base metals market not trading. US stocks closed mixed, in the absence of major economic or corporate news. However shares in Apple rose by 1.9pct, hitting a record US$680.87 a share at one point, after winning a patent dispute with Samsung.
Locally, financial stocks did generally well, with the exception of the Commonwealth Bank (CBA). CBA shares fell 0.4pct to $54.41 while shares in Westpac (WBC) were up 0.8pct by close to $24.87 and the National Australia Bank (NAB) added 1pct to $25.25. The ANZ (ANZ) added 1pct to $24.94 and Macquarie Group (MQG) firmed by 1.7pct to $26.71.
Mining stocks were generally lower however with Fortescue Metals Group (FMG) falling 2.5pct to $3.90 as the iron ore price fell below US$100 per metric tonne. Rio Tinto (RIO) lost 0.7pct to $51.75 while index leader BHP Billiton (BHP) was slightly higher at $33.10.
Among the companies reporting today; Australia´s largest travel agent Flight Centre (FLT) reported a $200.1 million net profit for the 2012 financial year which was largely in line with market expectations. This was the first time in its history that profit topped $200m. All 10 of its markets (countries) were profitable for the second straight year and its shop numbers grew by 5pct to 2362. FLT said the business continues to benefit from its scale and diversity. Looking ahead, FLT said it´s creating a new category of travel agency; what it calls a blended travel network, which is a mix between being purely web-based & having a physical presence in the form of shops (eg. clients could start a booking in store and complete it at home). It expects profit to rise this year, is prepared for ongoing economic volatility, is planning on expanding its workforce by adding 1000 new sales staff and is on track to open its 2,500th shop within the next 12 months. FLT declared a 71 cent per share dividend, to be paid to eligible shareholders on 12 October 2012. Its shares are up by 47pct since the start of this calendar year. FLT today added 0.4pct to $23.70.
Meanwhile, discount carrier Virgin Australia (VAH) reported net profit for the 12 months to June 30 2012 came in at $22.8 million, a sharp turnaround from a $67.8 million loss in the prior corresponding period. Revenue grew 19.8pct to $3.9 billion. Virgin Australia chief executive John Borghetti said the
airline´s successful targeting of corporate and government
travellers, who tend to pay higher fares and make up 20pct of total revenue, was a key factor in the improved result. However, he said the uncertain economic environment meant it was not possible to offer earnings guidance for the 2012/13 financial year. The lack of guidance disappointed investors, with VAH shares ending steady at $0.48. Rival Qantas (QAN) closed higher by 0.9pct to $1.19.
Poker machine supplier Aristocrat Leisure (ALL) reported a better than expected 40pct rise in first half net profit to $34.7 million. The result for the half year ended on June 30 beat the forecast the company gave in July of a net profit of between $30 million and $33 million. ALL shares soared by 7.4pct today to $2.76. ALL will pay an interim dividend of 4c per share.
The Housing Industry Association today reported new home sales fell by 5.6pct in July. While only the first decline in four months, the decline wiped out all the gains over the period. It was also the second lowest monthly total of new homes sales in 11 years, behind the March 2012 result.
“After a few glimmers of light, the housing construction market is back in the doldrums,” said CommSec Chief Economist Craig James of the data. “Newly-erected homes aren’t selling, reducing the requirement for builders to start work on new projects. The Reserve Bank Governor has expressed surprise about the lack of home construction, but there still aren’t signs of an upturn.”
The Australian dollar ended the day’s trade weaker against the greenback, buying US103.69c. It was also worth Australian dollar ended the day’s trade weaker against the greenback, buying US103.69c. It was also worth €83.05 and £0.6569.
On the market overall, a total of 1.64 billion shares were traded, worth $3.65 billion. 439 were up, 503 were down and 350 were unchanged.
London was closed for a Bank holiday overnight, meaning there was no direction for our miners today with the base metals market not trading. US stocks closed mixed, in the absence of major economic or corporate news. However shares in Apple rose by 1.9pct, hitting a record US$680.87 a share at one point, after winning a patent dispute with Samsung.
Locally, financial stocks did generally well, with the exception of the Commonwealth Bank (CBA). CBA shares fell 0.4pct to $54.41 while shares in Westpac (WBC) were up 0.8pct by close to $24.87 and the National Australia Bank (NAB) added 1pct to $25.25. The ANZ (ANZ) added 1pct to $24.94 and Macquarie Group (MQG) firmed by 1.7pct to $26.71.
Mining stocks were generally lower however with Fortescue Metals Group (FMG) falling 2.5pct to $3.90 as the iron ore price fell below US$100 per metric tonne. Rio Tinto (RIO) lost 0.7pct to $51.75 while index leader BHP Billiton (BHP) was slightly higher at $33.10.
Among the companies reporting today; Australia´s largest travel agent Flight Centre (FLT) reported a $200.1 million net profit for the 2012 financial year which was largely in line with market expectations. This was the first time in its history that profit topped $200m. All 10 of its markets (countries) were profitable for the second straight year and its shop numbers grew by 5pct to 2362. FLT said the business continues to benefit from its scale and diversity. Looking ahead, FLT said it´s creating a new category of travel agency; what it calls a blended travel network, which is a mix between being purely web-based & having a physical presence in the form of shops (eg. clients could start a booking in store and complete it at home). It expects profit to rise this year, is prepared for ongoing economic volatility, is planning on expanding its workforce by adding 1000 new sales staff and is on track to open its 2,500th shop within the next 12 months. FLT declared a 71 cent per share dividend, to be paid to eligible shareholders on 12 October 2012. Its shares are up by 47pct since the start of this calendar year. FLT today added 0.4pct to $23.70.
Meanwhile, discount carrier Virgin Australia (VAH) reported net profit for the 12 months to June 30 2012 came in at $22.8 million, a sharp turnaround from a $67.8 million loss in the prior corresponding period. Revenue grew 19.8pct to $3.9 billion. Virgin Australia chief executive John Borghetti said the
airline´s successful targeting of corporate and government
travellers, who tend to pay higher fares and make up 20pct of total revenue, was a key factor in the improved result. However, he said the uncertain economic environment meant it was not possible to offer earnings guidance for the 2012/13 financial year. The lack of guidance disappointed investors, with VAH shares ending steady at $0.48. Rival Qantas (QAN) closed higher by 0.9pct to $1.19.
Poker machine supplier Aristocrat Leisure (ALL) reported a better than expected 40pct rise in first half net profit to $34.7 million. The result for the half year ended on June 30 beat the forecast the company gave in July of a net profit of between $30 million and $33 million. ALL shares soared by 7.4pct today to $2.76. ALL will pay an interim dividend of 4c per share.
The Housing Industry Association today reported new home sales fell by 5.6pct in July. While only the first decline in four months, the decline wiped out all the gains over the period. It was also the second lowest monthly total of new homes sales in 11 years, behind the March 2012 result.
“After a few glimmers of light, the housing construction market is back in the doldrums,” said CommSec Chief Economist Craig James of the data. “Newly-erected homes aren’t selling, reducing the requirement for builders to start work on new projects. The Reserve Bank Governor has expressed surprise about the lack of home construction, but there still aren’t signs of an upturn.”
The Australian dollar ended the day’s trade weaker against the greenback, buying US103.69c. It was also worth Australian dollar ended the day’s trade weaker against the greenback, buying US103.69c. It was also worth €83.05 and £0.6569.
On the market overall, a total of 1.64 billion shares were traded, worth $3.65 billion. 439 were up, 503 were down and 350 were unchanged.
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