Overview of the Exchange Rate Systems

How exchange rates system works

The exchange rate is simply how much one currency is worth of another. Two main systems determine an exchange rate—a floating (fluctuating or flexible) and a fixed (pegged) currency. A floating currency is one that depends on how much buyers are willing to pay for it or what the supply and demand is. If a country’s economy is stable, the floating currency is advantageous for the country as its market can quickly change the rate to avoid inflation or other economic issues. If, however, the country has a weak economy,…

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The Euro

An economic and monetary union between the members of the European community was first attempted in the 1960s, but the euro wasn’t created until January 1, 1999. It was finally put into use in 2002, and it was slowly taking over the former national currencies. The European Economic Community needed a way to reduce the currency exchange rate fluctuation. In 1969, Pierre Werner, prime minister of Luxembourg, proposed a plan to centralize the national macroeconomic policies by fixing parity rates and allowing flexibility of the capital. He did not, however, mention…

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History of Wire Transfer

First telegraph

Money is believed to be first used in 600AD in China, and money transfers started about 150 years ago — around the time the telegraph was invented. Western Union completed the first transcontinental telegraph line in 1861. In 1879, WU left the telephone business. That inevitably led to money transfer becoming their primary business. Pricey, effort and time consuming In the past, transferring money was pricey, and it required lots of time and effort. One gave the money to a bank or a telegraph office, and the clerk would then…

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The Short Story of Banking

Before the money was invented, food, clothing, shelter, gold and other items were traded instead. It was not long after goldsmiths started casting golden coins, so people could trade them for goods. Exchanging coins was far more convenient and people could carry them on longer distances. By collecting these coins, they were gaining wealth, and naturally, they needed a safe place to keep it. Many were asking the goldsmith to protect their gold. In return, they were paying him to rent storage space. The goldsmith was becoming good at the…

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