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It is important for traders to understand the exchange rates, as these are essential for describing the currency of a certain country in regards to the currency of another. The term is also known as the Forex rate or as the foreign exchange rate. There are three categories of the rates and each of them has their own features. When trading on the Forex market, it is essential to be familiar with every term and to know what it means and how to interpret it. This goes the same for the conversion rate as well. The first category of exchange rates is the fixed rate. In this case, the central bank of each country establishes the rate. Afterwards, all the transactions involving exchanges are carried out by the same rate. Also, the central bank has the responsibility to maintain the rates. There are also several advantages due to this fixed rate. For once, the prices for the imports and exports do not change on a fast pace, because the rates are fixed. The trade terms are more stable and the even if the fluctuations on the international market take place, the country with fixed rates will not be affected. More than that, there is the floating rate as well. Supply and demand are the ones establishing the exchange rates. It is almost impossible to have a floating exchange rate if the central bank of the country or even the government does not interfere. Certain steps have to be taken to be able to control the market and the rates. The demand of imports can affect a certain country, as thus the demand for currency will rise. In this case, there are both advantages and disadvantages. On the plus side, the floating rate system has the ability to adjust automatically the differences that exist in the demand and supply of a currency. As for the disadvantages, inflation will arise and it will be the responsibility of the central bank to control and change the interest rates. Because it is a fluctuating market, the rates will change constantly and the prices will also change. Each system has its characteristics and understanding them will lead to understanding the market and how it works. The managed floating rate is the third category and it implies the fact that the currency will not float on its own, as the exchange rates are managed by the central bank. A quoted price will be displayed by the bank, using certain tools, such as the exchange rate calculator. The conversion rate has its purpose as well. To make things clear, there are several factors that influence the Forex rates and affect them. The interest rate is the most determinant factor and any changes in it will also change the Forex rate. Other major factors refer to the foreign investments, how financially stable is a certain country, the trade flows and the policies that each central bank has. It can be rather confusing to know all the terms and so, but it is essential for learning about the global economy and how each country functions. Other important terms refer to the conversion rate and how it is established. Due to everyday changes in foreign exchange rates, it is not a very easy task to manage currency conversion. But with the right tools, everything is possible. Finding out about conversion rate and other financial terms is crucial.
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