Whenever you start financial trading you’ll notice that everything’s priced up in US dollars. At the Academy of Financial Trading we recognise that this can be confusing to people who don’t know the culture of financial trading. So what is the importance of US dollars in financial trading?
First of all the US dollar is important in financial trading because it is the unit of currency used in the United States of America. The US is the largest economy in the world and this alone means that the US dollar has immense value for everybody else.
This is because of the investing power the US holds. A good lesson to learn is that the larger the economy, the greater scope it has for ploughing that money back into businesses around the world. This means it makes sense that they are trading in the US dollar, because they’re business is largely fueled by investment from the US.
However it goes further than this .The US dollar is used as the standard unit of currency in international markets for all sorts of commodities and products.
This means that if you are investing in the Indian gold market, you’ll be doing it in terms of dollar worth. If you’re investing in the technology markets of Japan you’ll be doing it in dollar terms. Whatever company in whatever area of the world you’re trading in, it’ll be in dollars.
This practice is so common place that a whole host of non US based companies even list their share prices in US dollars. Airbus is one notable example where this happens.
Furthermore the US dollar is one of the world’s most popular reserve currencies. A reserve currency is a currency that a country hold in large amounts (that is not their own) that is used in international transactions between nations.
So when a nation makes a trade deal, for example, with another nation, it’ll do it in a popular reserve currency such as the dollar. This is because both nations find value in a reserve currency; whereas there might be problems if the nations used their own currencies in terms of value and exchange rates. The fact that many nations recognise the dollar as a reserve currency speaks highly about its value.
In conclusion a currency only holds so much value as people are willing to give it. The US dollar is generally held to be one of the most valuable currencies in the world; this is why the US dollar is so important in financial trading.
Considering that rising Japanese inflation has come to our attention recently, this week the Academy of Financial Trading blog thought we’d bring you a basic guide to the Japanese economy. Why do you need to know about it to succeed in financial trading?
Basically Japan is the third largest economy in the world, behind only the US and China. Considering that the larger the economy, the greater impact it has on global financial affairs, it stands to reason that Japanese economic activity stands only behind American and Chinese in nations that could have an effect on markets that could alter your financial trading strategy.
Now for a little history lesson. The Japanese economy was devastated by its loss in World War Two, however it quickly recovered, and in the three decades following 1960 expanding majorly because it cut defense spending to solely focus on economic growth. However more recently the country has been dealing with a 15 year long deflation problem.
Today Japan is impressive statistically. It is the country with the third largest GDP (Gross Domestic Product, a nation’s market value of all its final goods and services) in the world. It is the third largest car manufacturing country in the world and has a large electronics industry that is valued by many.
Japans key exports (goods and services it sells to other nations) are cars, electronic devices and computers. Its key imports (goods and services it buys from other nations) are raw materials such as oil, foodstuffs and wood. Trade partners include the US, China, Singapore, Hong Kong, Germany etc.
From this it’s easy to see why you have to watch what’s going on in Japan. It trades with many countries heavily; meaning that any economic development in the island nation could have ramifications internationally and its role in a myriad of industries indicates that trading in any of these areas means you’ll have to deal with Japan in one way or another.
Generally Japan is a strong nation that can bear economic storms well, however it has its fair share of issues. One problem we’ve already alluded to is its 15 year battle with deflation. Deflation is a fall in consumer prices throughout the economy, usually coming at a time of high unemployment.
This has proved a key issue in Japan because lower consumer prices mean that companies are less eager to sell in your country. Nobody wants to sell their product at a loss and this has had a shrinking effect on Japanese economic growth. However despite this Japan is still a thriving market.
Japan is an amazingly innovative, diverse economy that has an impact on numerous areas of global trade. This is why you need to know about Japan in financial trade, so you can anticipate how its developments may affect your investments.
