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What are Exotic Currencies? Will I get less for my money

Published on 7 February 2017 in More Information - Pages by Raffick Marday

What are Exotic Currencies?


Trading in foreign exchange is one of the most lucrative pursuits in the world. The risk/reward ratio is very high. In just a few hours, fabulous fortunes can be made...and lost!




Interbank Rates and Exotic Currencies

The most sophisticated and successful traders are knowledgeable and know the vital importance of timing. What was considered a wise decision five minutes ago might be a terrible decision now.





They are always in research-mode. Lets emulate them by learning about interbank rates and exotic currencies. If you a planning to travel to an emerging country, to invest in one, or you are a foreign exchange trader, it is wise to know about the next few points we need to be exploring.







In the foreign exchange markets, currencies are classified into major, minor and exotic. What are exotic currencies? Read on.




What are interbank rates?

Interbank rates have two meanings: they are the rate of interest banks charge on short-term loans, and they also mean the price at which high-volume foreign exchange transactions are conducted.



What are exotic currencies and their characteristics?


They are currencies that do not form part of the major ones that are regularly traded in foreign exchange transactions, such as Dollar, Pounds, Deutschmark, Yen...





They are currencies of emerging nations, such as that of Singapore, Iraqi, Thailand, Brazil...



They have the following key characteristics: are thinly-traded, not popular (and, at such are illiquid and have low trade volumes), lack market depth, and are expensive because of their bid- ask spread is often large. Its difficult to trade them in a usual brokerage account. They are minor currencies. Its vital to stress that they are not necessarily undervalued or weak currencies, but it shows that they are unpopular and limited.





Examples of Exotic currencies


· Iraqi dinari



· Uruguay peso



· Thai baht



· South African Rand



· Danish Krone



· Turkish Lira



· Hong Kong Dollar

What are exotic currency pairs?


We have exotic currency pairs when a major currency is paired with the currency of an emerging market. For example, USD/SGD US Dollar/ Singapore Dollar



Why do banks charge more for exotic currencies?


The rate bank charge on foreign exchange transactions is between 1 and 4 percent, but for exotic currencies, they charge more. This is because these currencies are not as liquid as the majors and they are traded in low volumes.

The high charge is compensation to the bank, for its reduced margin, relative to if it were selling a major currency.





We have reviewed the interbank rates and exotic currencies, and we hope that you would leverage the information to increase your earnings and net worth.

 


The rates shown below are based on today's Interbank rates at 07.15 AM. Please use the currency converter for current live rates or if you require a currency quotation then please use the request info to get a free individual quotation with no obligation to trade.

Please use the currency calculator to obtain other currency rates and the current exchange rates, bank exchange rates for exotic currencies

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