NISM-Series-I: Currency Derivatives Certification Exam Notes

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  • (FX) is the value of one currency of one country versus value of currency of other country.
  • Whenever there is a cross-border trade, there is need to exchange one brand of money for another, and this exchange of two currencies is called 'foreign exchange' or simply 'forex' (FX).
  • As per Gold Standard Mechanism, central banks issue paper currency and hold equivalent amount of gold in their reserve. The value of each currency against another currency was derived from gold exchange rate.
  • During 1944-1971, countries adopted a system called Bretton Woods System. This system was a blend of gold standard system and floating rate system. As part of the system, all currencies were pegged to USD at a fixed rate and USD value was pegged to gold.
  • After Bretton Woods system was suspended, countries adopted system of free floating or managed float method of valuing the currency.

NISM Currency Derivatives