Making Foreign Exchange Transactions In Banks
Foreign exchange with respect to the circulation of national currency and foreign currency can be defined as currency in the sense of all kinds of bonds, checks, policies and other securities that substitute for money and can be used as a payment service.
Characteristics Of Foreign Exchange Transactions
The following characteristics must be taken into account when performing foreign exchange transactions. Transactions are recorded in odd numbered accounts in foreign currency (fixed rate).
If the transaction (other than the effective state and foreign currency accounts) is related to two foreign money accounts, only those foreign money accounts are recorded.
Nominal Effective Exchange
The exchange of value of one currency against the other major currencies is a sign of the trend both in the foreign exchange market and commercial competition. This is called nominal effective exchange rate. However, nominal effective exchange rate changes are insufficient to show the commercial competitiveness because the inflation rate of countries is different.
Real Exchange Rate
If the value of a country loses value in the world market, but only to compensate for the inflationary difference between that country and the external world, the exchange rate remains the same in real terms; there has been no change in the commercial competitiveness due to exchange rate changes. The real decline or increase in the effective currencies is used as a measure of the foreign exchange market and of the situation of commercial competitiveness.