20/09/2021
Did you know?
About six players participating in the forex market?
The six major players are:
1. Central banks
2. Commercial banks and investment banks
3. Multinational corporations
4. Institutional traders
5. Retail brokers
6. Retail traders
Details of each player:
1. Central banks
- Central banks are here to stabilize the country's economy. They focus on the important benchmark in the world : INFLATION 🔍
INFLATION is commonly defined as the rate at which prices of goods and services are rising.
In other countries INFLATION is measured through the consumer price index (CPI). The consumer price index is weighted average of prices of a basket of consumer goods and services. These consumer goods and services include but not limited to housing, food, transportation, recreation, education and medical care.
The central bank :
- Regulates interest rates(UP)
Central banks normally increase the interest rates when inflation is high. When central banks increase the interest rates, deposit rates and lending rates in commercial banks go up accordingly.
This affects two groups of people: savers and borrowers
Thus discouraging both people and businesses to take up loans.
Higher deposit rates encourages both people and businesses to save more than they normally would.
This combined effect causes money supply in the system to decrease, thereby countering the effects of inflation.
Central banks regulates interest rates (down):
- Central banks normally decrease the interest rates to weaken it's currency.
This commonly happen when inflation rates are low.
A weak currency encourages lending and stimulates growth.
When central banks decrease the interest rates, deposit rates and lending rates in commercial banks go down accordingly.
This affects two groups of people: savers and borrowers.
Lower lending rates makes the money cheap to borrow, encouraging both people and businesses to take up loans.
Lower deposit rates push people and businesses not to save more than they would.
This causes money supply in the system to increase.
Central banks engage in currency exchange to strengthen its currency or weaken it.
It regulates the Reserve Requirement Ratio.
The reserve requirement Ratio (RRR) is the amount of liquid assets that a central bank mandates a bank to keep at all times.
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We thereby advise you to make your research, this is not a financial adviser.
