The most comprehensive educational resources for finance

Fixed Exchange Rate Systems

Fixed Exchange Rate Systems require active intervention by the government to keep the currency value stable. A country can create a fixed exchange system by: Implementing a gold standard (the currency can be converted to gold); Using a currency board to manage the money supply and keep the domestic currency value stable in relation to

Foreign Exchange Floating Rate Systems

In a floating rate exchange system, a supply and demand relationship exists between the price of currency Y against currency X and the quantity available of currency Y. Moving along the currency demand curve (or changes in quantity demanded): Exports Effect – citizens of country X do not demand currency Y, rather they demand goods

Foreign Exchange Rate Systems and Parity Relationships

There are two major categories of exchange rate systems: Flexible or Floating – laws of supply and demand determine currency value Fixed – the government pegs the exchange rate value and actively participates in currency markets to maintain the value The market quotes nominal exchange rates whereby a unit of once currency can be exchanged

The Mechanics of Carry Trade

Carry trade is a strategy in which an investor borrows or sells a financial instrument with low interest rate and uses the proceeds to lend or purchase a financial instrument with high interest rates. For example, an investor can borrow money in another country’s currency where the interest rates are very low, and lend the

Continuation Chart Patterns: Rectangles

In the Chart Patterns Overview, we discussed that continuation chart patterns signal that the ongoing trend will continue for some time. This means that after the formation, the price movement will continue to follow the same trend as it was before the formation. Rectangles are common continuation pattern. They suggest that the prices will continue

Reversal Chart Patterns: Rising and Falling Wedge

In the Chart Patterns Overview, we discussed that reversal chart patterns signal the ending on an ongoing trend, i.e., they signify a reversal of asset’s price direction. In this article, we will discuss the two popular reversal patterns, namely, Rising and Falling Wedge. The wedge pattern is a commonly found pattern in security prices. It

Reversal Chart Patterns: Double Tops and Bottoms

In the Chart Patterns Overview, we discussed that reversal chart patterns signal the ending on an ongoing trend, i.e., they signify a reversal of asset’s price direction. In this article, we will discuss the two popular reversal patterns, namely, Double Top and Double Bottom Double Tops: The Double Top pattern is formed when an uptrend

Reversal Chart Patterns: Head and Shoulders

In the Chart Patterns Overview, we discussed that reversal chart patterns signal the ending on an ongoing trend, i.e., they signify a reversal of asset’s price direction. Head and Shoulders is the most common reversal pattern. There can be a normal head and shoulders pattern or inverse head and shoulders pattern, depending on whether the

What is Relative Strength Index – RSI?

Relative Strength Index is a technical indicator used to chart the strength or weakness of a stock based on its closing prices for a specified trading period. For the given period, it compares the magnitude of gains and losses based on the principle of momentum. Momentum refers to the rate of rise or fall in