Parities are currency pairs that show the value of one country’s currency against another country’s currency. According to their prevalence in global markets, they are examined in two groups: major and minor (exotic) parities.
Parities are currency pairs that show the value of one country’s currency against another country’s currency. According to their prevalence in global markets, they are examined in two groups: major and minor (exotic) parities. The most traded pairs in global markets are called major. Another reason why these currencies are called major is that the country’s economies are robust and dynamic. There are 7 major currencies traded in financial markets. These are Euro, US Dollar, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar, Australian Dollar. Minor currencies are currencies with lower transaction volumes that are preferred by local investors. The most preferred minor currencies are the New Zealand Dollar, South African Rand and Singapore Dollar. Parity pairs consisting of a major currency and a minor currency are also called minor parities. To explain by giving an example; Although USDTRY is a minor parity, it is most preferred by Turkish investors.
In the Forex market, every transaction on parity occurs by selling one currency and buying another currency. According to this pricing, it should be understood how much must be paid in the counter currency to buy one in the first currency. If the EURUSD parity is priced at 1.1090, 1.1090 USD will need to be paid to buy 1 EURO. In the Forex market, investors aim to profit from the price fluctuations of currency pairs by buying or selling one currency in exchange for another. While the expectation of investors who want to buy Euro and make a profit is that the value of the parity will increase, this situation is shaped according to the abundance of supply and demand.
So how is parity calculated? Let’s clarify this question with the help of an example;
EUR-TRY: 3.2440
USD-TRY: 2.9220
EUR-USD is calculated as: 3.2440/2.9220 = 1.1101.
There are many factors that affect the pricing of the parity. These are economic data, Central Bank decisions, political developments and geopolitical risks, and they have a significant impact on the pricing of the currency. While increases in interest rates, growth figures or industrial data announced above expectations cause the currency to gain value; Low employment, increasing foreign trade deficits in developing countries or rising inflation lead to currency devaluation. Uncertainties in the country’s political structure and loss of political trust will cause the currency to lose value.
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