Tag: central banks

What is Negative Interest Rate Policy (NIRP)

What is Negative Interest Rate Policy (NIRP)

Financial Markets Explained
Central banks across the world have been talking about it, some have already implemented it, and others are still considering it. It is safe to stay that Negative Interest Rate Policy or NIRP could pretty much be the new norm, right after QE. A decade ago, negative interest rates were seemingly unthinkable, but in today's times where central banks mandated to maintain price stability or inflation, negative interest rates are mentioned periodically and with ease. So what are negative interest rates and why is there so much fuss around this? What is Negative Interest Rate Policy? In a sane world, interest rate is the price one pays to borrow money. In the credit markets or bond markets, it goes by the name of yield. Yield is nothing but a dividend, interest or returns an investor expects f...
Forex Fundamentals: Interest Rates and Central Banks

Forex Fundamentals: Interest Rates and Central Banks

Financial Markets Explained
At a time when interest rates across the developed economies of the world are at record lows, Interest rates is a fundamental economic indicator that cannot be ignored. No wonder, why speeches from Central Banks and monetary policy minutes are so eagerly watched every month. On average, around the release of this news, which also includes interest rate decisions, the respective currencies tend to be very volatile and the price action leading into a few hours after the release usually tend to change trend or continue the prevailing trend. Understanding Interest Rates The concept of a stronger currency attracting higher interest rate in comparison to other currencies forms the basis of the interest rate parity. Investors tend to seek high yielding currencies, or in other words, currencies ...
Who are forex market participants

Who are forex market participants

Trading Articles
Unlike a stock market, the foreign exchange market is divided into levels of access known as forex market participants. At the top is the inter-bank market, which is made up of the largest commercial banks and securities dealers. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and not known to players outside the inner circle. All these together form the forex market participants. The difference between the bid and ask prices widens (for example from 0-1 pip to 1-2 pips for a currencies such as the EUR) as you go down the levels of access. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to ...