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Global Financing And Exchange Rate Mechanisms

1016 words - 4 pages

Global Financing and Exchange Rate Mechanisms
Global Financing and Exchange Rate MechanismsJoseph RehmanApril 19, 2010University of PhoenixMGT 488Global Financing and Exchange Rate MechanismsIntroductionIn this paper we will discuss hard and soft currencies. A currency is something that is exchanged for a good or a service. Most times this can be in the form of a paper bills and coins. The must have a monetary value, which that can either be a hard currency or a soft currency. According to the International Business textbook states that the Bank of International Settlement that $6.4 trillion is internationally financed by banks around the world and that the total world banking assets are over $20 trillion. These two different types of currency are very important to international trading which requires one of the two. Many times government who participate in any type of trade must keep careful track of their transactions and investments. We will define how hard and soft currency and how they apply to the global financing and exchange rate mechanisms.Hard currency is defined by Investopedia.com, "A currency, usually from a highly industrialized country, that is widely accepted around the world as a form of payment for goods and services. A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex market." Hard currency is one of the most valuable form when it comes to international trading. Hard currency mainly come from countries that have both political and economical stability, which are United States, Europe, Japan, and Australia. Some of the best examples of hard currency is the U.S. Dollar, the European Euro, the Japanese Yen, and the British Pound. Most the times hard currencies are backed up with a hard money policy. This is can be backed by gold, silver, and platinum, which help support the value of their currency with an authentic, substantial, material that maintains its value for long periods of time.Using precious metals, such as gold, silver, and platinum, helps keep the overall countries currency stable and keeps it from losing value. Being in high demand the rate of hard currency normally appreciate due to their high demand comparative to supply and demand. Gold, silver and copper were used to lead the way in creation of currencies like the pound and dollar. New currencies are not consumer products however; they are considered an institutional right which guarantees that the currency is worth a monetary fund. The currency rate is determined by the central banks and the rate rises and falls based on supply and demand. Two main currency risks are currency inconvertibility and exchange rates.Soft CurrencySoft currency is defined by Wikipedia, "Soft currency indicates a type of currency whose value may depreciate rapidly or that is difficult to convert into other currencies. It is generally less desirable than hard currency to users. Soft currency can be in the form of...

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