Various forms of international economic intercourse - trade in goods and services, the movement of loan capital and investment, production and scientific-technical cooperation, labor migration and international tourism - forms of supply and demand for domestic currency at the international level .. TV on., It becomes a currency, while carrying out the functionality of the treatment and payment (read also: Financial instruments of the securities market).

The most important world centers of monetary and financial market are London, New York, Frankfurt and Tokyo. Here work the largest commercial banks of the world, with multiple offices and a network of free foreign exchange holdings. Bank clerks perform foreign exchange operations (read as: International

banking and international payments, the National Monetary System), selling information about it, issue currency notes, carry out currency transfers. (See also: The International Monetary System, international banking and international payments)

In Western theory, historically the two approaches in the study of monetary problems. First presented to the Keynesian school, according to which the active state regulation of currency relations (for more information: The International Monetary System). Another related to monetaristkoy theory proclaiming the failure of centralized intervention to regulate demand and supply in currency markets.

What is due to the demand for this or that nation's currency? Why a national unit of one country "wins" the whole world. Currencies are more and more "drop" in price? The answer to this question can be briefly summarized as follows: international exchange market and the state of the national economy is very closely linked.

In an open market economy must be practically dividing line between domestic money and currency. Such an ideal state, involving a free exchange of currencies, not enough for many sectors of the economy. As in origin derived from the national economies, the global foreign exchange market has, in turn, significant and sometimes decisive influence on monetary policy of the States.

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Converting - The exchange of one currency into other foreign currencies - may be partial, when the currency of one country is exchanged only at some (partially convertible currency), and complete, when the exchange is made on all foreign exchange (hard currencies).

It should be noted that in the vast number  exchange interactions dominate this so-called "floating" exchange rates, opredelyamye supply and demand of currency on the market. Floating exchange rates often give rise to deteriorating terms of trade for individual countries., Difficulties in regulating trade flows, can not stimulate economic stability conjuncture. Therefore, "floating" exchange is not absolute, it is controlled abbr, assumes a degree of support from the state.

World currency exchange and not only today carries on its business as a solid and soft currencies. Among the first are the traditional Swiss franc, the Germans mark, the Japanese yen, the U.S. dollar. At the U.S. dollar is carried out more than half of world trade, it plays the role of foreign exchange reserves of the world and international private lending. It is therefore obvious that the stability of the key currency is interested a whole chain of interrelated trade and economic partners.

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A number of countries there are still fixed exchange rates: the price of the national currency is set against the generally accepted standard (usually the U.S. dollar) and is supported by the state. This means that it should have, to fill up and use the considerable foreign exchange reserves, implement measures to restrict imports (to introduce import duties, import quotas), as well as to subsidize exports, to establish exchange controls with obzatelnoy sale of export currency earnings to the state. In this situation, a great chance to have all sorts of deviations of real exchange ratio of fixed-rate calling to life the so-called "black market, corruption and bribery of official structures, which are not able to avoid virtually no country in the world. Thus, for each country the task of choosing the optimal exchange rate regime.

Foreign Exchange Market is a form of financial, designed to serve foreign trade operations of economic agents. Drive the development of the bilateral trade relations, is the market mechanism, based on supply and demand.

In his own country, where the monetary circulation of national currency turns around, people acquire the necessary imported goods and services related to the departure abroad, for its own currency. However, importers are offering these products and services to the public, must pay with foreign partners exporting foreign currency. Thus, every state needs a certain number ve of foreign currency and therefore makes the demand for it.

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How the government finances its import demand for these services as it receives the required amount in foreign currency? The main source is the export of their goods and services.

As you know, the import creates a demand for foreign currency, and exports, in turn - a proposal it. Supply and demand of foreign currency are combined in the foreign exchange market. Wanting to get the necessary number of foreign currencies, business entities apply to the banks, which at the current exchange rate could sell them to foreign currency. Possibility of selling foreign currency to commercial banks are not unlimited and limited by the presence of its assets in its own funds and foreign currency. If a commercial bank at the time of the request to purchase enough foreign currency assets in the portfolio, he can buy the currency from other banks in the interbank foreign exchange market or by any foreign bank - the international currency market.

Opportunities of domestic foreign exchange market by selling foreign currency controls the central bank, which through a policy of foreign exchange reserves reduces or increases the foreign exchange reserves of the country in circulation.

The exchange rate of two different currencies reflects a comparison of their purchasing power. This assertion lies at the basis of the theory of purchasing power parity, according to which the exchange rate between the two countries reflects the changes in the ratio of the price level in them. And it is not about comparing the prices of certain goods in these countries, and the level of prices in general.

The exchange rate is a complex synthetic economic category. It is defined by both fundamental economic factors and konyukturnymi supply and demand factors. Among the fundamental economic factors that determine long-term dynamics of the exchange rate are productivity, economic growth, flexibility and efficiency of the financial system, the level of technology and productive resources of the country. These factors determine the underlying competitiveness of national economies in the world market. Only they can provide long-term stability of the exchange rate as the external value of the national currency.

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Reasons for changing the current exchange rate are changes in demand and supply in the foreign exchange market. Economists tend to identify trends of possible purchases or sales of a currency, can predict the rise or fall in the exchange rate.

The exchange rate affects the balance of payments. If the balance of payments is a scarce,  aggregate payments on foreign obligations exceed receipts of currency, the currency reserves of the country, covering the shortfall in balance of payments decline. Reduce them, in turn, causes a decrease in exchange rate ( depreciation of its external value). This is because the reduction in foreign exchange reserves on the money supply in the domestic currency makes foreign currency more scarce. The lowering of the exchange rate of the domestic currency increases the cost of imports, contributes to higher prices in the economy through inflation costs. Balance of payments surplus, on the contrary, increase foreign exchange reserves within the country.

Thus, the volume of payments to pay for imports of goods and services, as well as the extent of short-term capital outflows from the country determine the demand for foreign currency. At the same time causes such as the amount of income from exports and the extent of capital flows, determine the supply of foreign currency. All these changes will ultimately affect the exchange rate. However, what factors and how they exert their influence on the volume of import payments and export earnings, as well as the magnitude of outflows and inflows of capital? First of all, it tastes and preferences of consumers. The changes in these affect the demand of foreign currency and its proposal.

An important factor which largely determines the ratio of price levels within the country and abroad, is inflation, which may be caused by both internal to external causes. The government and the central bank can control the internal factors of inflation, implementing the necessary economic policies.

Forecasts and expectations about the conjuncture in the commodity and financial markets have a significant impact on the balance of payments and a more definite impact on the current foreign exchange market through changes in supply and demand of foreign currency. For example, projections of international financial institutions like the IMF and World Bank, it is expected that Russia's economy will grow relatively quickly and with relatively lower rate of inflation, real interest rates are relatively high. These expectations are intensifying attraction in the country of entrepreneurs and capital from foreign countries, stabilizes the exchange rate.

Fluctuations of short, medium and long-term cycles of the economy have a direct impact on the balance of payments, reducing or increasing aggregate demand. Phases downturn, aggregate demand is reduced, there is a change in the flow of imports and exports, the movement of short-and long-term capital. Imports of goods responds, usually on the cyclical fluctuations in domestic demand, while export is determined by external economic conjuncture.

Short-term balance of payments imbalances do not have any negative effects Suitable economy. Fear of economists and politicians cause prolonged or persistent balance of payments imbalances, in particular its bifidity. In these cases, foreign reserves depleted, it is forced to increase its external debt to the creditor countries, the preconditions are created to reduce foreign investment in the form of both the business and loan capital.

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Terms of trade can have a direct influence on the exchange rate. All kinds of barriers in the form of tariffs (taxes on imports and exports) and quotas (limits on the number of goods for import and export) affect the flow of imports and exports,  on the trade balance. Changes in import and export are changes in demand and supply of foreign currency, which ultimately could affect the current exchange rate. Suppose, Belarus imposes import tariffs for Kazakh grain, which increases its price for Belarusian consumers and sharply restricts imports. The demand of the Belarusian population will switch to corn grown in the country. The decrease in imports has reduced its foreign currency and a corresponding increase in demand for the currency of its own, chop ultimately strengthen its exchange rate.

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Adjustment of balance of payments is important in neutralizing the negative trends in the balance of payments. Activities aimed at consolidating its nominal exchange rate, which as a result of the initial proposals to reduce currency or to increase the demand for foreign currency has deviated from its equilibrium state.

The main methods of adjusting the balance of payments are:

1. The policy of using reserves. It is the accumulation of central bank sales to official foreign exchange reserves in the currency market. As a result of currency intervention proposal currency increases and neutralize to some extent, the initial deflection of the exchange rate.

2. Monetary policy trade restrictions aimed at curbing imports (or the demand for foreign exchange) by imposing explicit restrictions on current account and the capital account, as well as of foreign exchange rationing. Restrictions on trading transactions are entered in the form of quotas and customs duties on imports of certain products, bans on the export of certain articles of the capital. In parallel, the State may undertake activities to promote exports by lowering taxes on some goods. Currency rationing lies in keeping the government and central bank rules mandatory surrender of part or all of export proceeds in foreign currency, followed by selective distribution of important priorities of the articles of import.

3. Discretionary policy of the Monetary and Fiscal instruments, which is one of the main ways to maintain the exchange rate. Containment of imports will contribute to a restrictive fiscal policy (see the tools of state influence on foreign economic activity), is located sokraschayushaya incomes. As the scale of imports is directly linked shrove income people, the decline in revenues resulted in a reduction in imports.

4. Same granite effect only through the capital account, may have a monetary policy of the central bank (see the effectiveness of monetary policy), carried out through a policy of dear money. Increasing the relative interest rates on financial markets (see also: Financial Markets. The functions of financial markets and financial system) results in the attraction of foreign capital into the country, increasing foreign exchange reserves and thereby stabilizing affecting the exchange rate.

As a tight monetary policy and restrictive fiscal policies to a certain extent affect the slowdown in prices for domestic goods, which will determine the relative cheapening their prices compared to foreign ones. This situation will increase the country's exports. Increased exports of the country will support the trend of increasing its foreign exchange reserves and improve the exchange rate.