The authorized money of the eurozone which is made of 18 of the 28 affiliated states of the European Union namely Spain, Slovenia, Slovakia, Portugal, the Netherlands, Malta, Luxembourg, Latvia, Italy, Ireland, Greece, Germany, France, Finland, Estonia, Cyprus, Belgium and Austria; and the currency utilized by the Institutions of the European Union is called Euro, with a sign € and a code EUR.
As of 2013, a further five European nations also utilized the euro currency and therefore utilized daily by some 334 million Europeans. Moreover, as of 2013, 210 million people worldwide — involving the nation of Africa with 182 million people — utilized currencies connected to the euro.
The euro is the second biggest reserve currency as well as the second most exchanged currency in the world next to the United States dollar. With more than €951 billion in circulation, as of November 2013, the euro has the topmost combined worth of coins and banknotes in circulation in the world, having topped the U.S. dollar. According to the International Monetary Fund computation of 2008 GDP and buying strength parity among different currencies, the euro zone is the second biggest economy in the world.
On December 16, 1995, the entitlement euro was formally accepted. While on January 1 1999, the euro was brought in to world monetary markets as an accounting money, as a replacement to the previous European Currency Unit (ECU) at a ratio of 1:1 (US$1.1743). Banknotes and coins of Euro comes into the circulation on January 1 2002. While later on, the euro declined to US$0.8252 within two years (October 26, 2000), it has exchanged over the U.S. dollar since the last part of 2002, topping at US$1.6038 on July 18, 2008. Since the later part of 2009, the euro has been deeply involved in the European sovereign-debt crisis which has led to the establishment of the European Financial Stability Facility as well as other reforms that aims to establish the currency. In July 2012, the euro sagged down under US$1.21 for the first time in two years, following concerns raised over Spain's troubled banking sector and Greek credit. As of November 2013, the euro has continued to be stable around US$1.35 for over 6 months.
The euro is administered and managed by the the Eurosystem (made up of the central banks of the eurozone nations) and ECB the shortened term for European Central Bank, which is based in Frankfurt. As an independent central bank, the European Central Bank has exclusive authority to set financial policy. The Eurosystem takes part in the activity of printing, minting and dissemination of coins and notes in all affiliated states, and the operation of the eurozone payment method.
The 1992 Maastricht Treaty requires most EU member states to acknowledge and use the euro upon reaching particular budgetary and financial convergence criteria, although not all states have done so. Denmark and the United Kingdom settled the privileges, while Sweden (which joined the EU in 1995, after the Maastricht Treaty was signed) rejects the euro in a 2003 referendum, and has bypass the commitment to use the euro by not meeting the budgetary and financial requirements. All countries that have joined the EU since 1993 have promised to use the euro in due course.
Since January 5, 2002, the European Central Bank and the national central banks have released euro banknotes on a joint effort. Euro banknotes do not indicate which central bank issued them. Eurosystem national central banks are asked to take euro banknotes put into circulation by other Eurosystem affiliates and these banknotes are not repatriated. The European Central Bank issues 8% of the overall worth of banknotes released by the Eurosystem. In practice, the ECB's banknotes are put into circulation by the NCBs, thereby incurring matching liabilities against the ECB. These liabilities bring interest at the primary refinancing rate of the ECB. The other 92% of the euro banknotes are provided by the NCBs in proportion to their respective shares in the capital key of the ECB, computed using national share of European Union population and national share of European Union GDP, equally weighted.
Since Euro is one of the strongly exchanged currency in the world, it is also part of the Forex market. In the currency exchange market, we have what we call currency pairs. A currency pair is the quotation of the relative worth of a currency unit versus the unit of another currency in the foreign exchange market. The currency that is utilized as the reference is called the counter currency or quote currency and the currency that is quoted in relation is called the base currency or transaction currency.
The most exchange currency pairs in the world are called the Majors. They constitute the biggest share of the foreign exchange market, about 85%, and therefore they exhibit high market liquidity. They involve the currencies euro, US dollar, pound sterling, Canadian dollar, the Swiss franc, Japanese yen and the Australian dollar.
The Majors are denoted as: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and USD/CAD.
The policies for formulating standard currency pair notations result from accepted priorities attributed to each currency.
From its inception in 1999 and as stipulated by the European Central Bank, the euro has first precedence as a base currency. Therefore, all currency pairs involving it should use it as their base, listed first. For instance, the US dollar and euro exchange rate is identified as EUR/USD.
Although there is no standards-setting body or ruling organization, the established priority ranking of the major currencies is:
New Zealand dollar
United States dollar
Historically, this was established by a ranking according to the relative values of the currencies with respect to each other, but the introduction of the euro and other market factors have broken the original price rankings.
Other currencies (the Minors) are generally quoted against one of the major currencies. These pairs are also referred to as currency crosses, or simply crosses. The most common crosses are EUR, JPY, and GBP crosses.
The word base currency in the foreign exchange field is also used as the accounting currency by banks, and is commonly the domestic currency. For instance, a British bank may use GBP as a base currency for accounting, because all earnings and losses are converted to the sterling. If a EUR/USD position is closed out with an earning in USD by a British bank, then the rate-to-base will be expressed as a GBP/USD rate. This ambiguity leads many market participants to use the expressions currency 1 (CCY1) and currency 2 (CCY2), where one unit of CCY1 equals the quoted number of units of CCY2.
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