USD/CZK Forex Pair
USD (US Dollars) to CZK (Czech Republic Koruna) is a lesser-traded currency pair on the Forex market. While not as frequently traded as other major pairs such as the USD/EUR pairing or the USD/GBP pairing, there are still benefits to trading these currencies. The Koruna is most commonly paired with the Euro in Forex trades, but there are some investors who see the advantages of opting for the less common pairing of USD/CZK. The Czech Republic is one of only a few European countries to opt out of adopting the Euro as its single currency, and thus is stands out in the financial markets as one of the smaller currencies when compared to the GBP, USD and EUR. Conversely, the US Dollar is the world’s biggest and most important currency, and this makes for interesting trading potential for experienced and novice traders alike.
Facts About the US Dollar and the American Economy
The US Dollar is the globe’s most widely used currency, being the official currency not just of the United States itself but also of numerous other nations including Ecuador, Panama, El Salvador and the Caribbean Netherlands. Several small countries have chosen to peg their currency to the US Dollar because of its strength. These include Aruba, The Bahamas, Bahrain, Barbados, Belize, The Cayman Islands, Hong Kong and Venezuela. The US Dollar is also widely utilised for international trading transactions outside the borders of the United States. The Dollar is made up of 100 units called cents (sometimes also known as pennies).
America has a mixed capitalist economy which is based on its natural resources, high productivity and a developed infrastructure. The GDP of the United States is $15 trillion, representing a fifth of the world’s GDP in purchasing power. However, even though the US GDP is bigger than that of any other single nation, it is 5% smaller than that of the EU, which is made up of 16 European countries. The US Dollar is the main currency chosen for global reserves.
The US Dollar dates back to 1690, even before the country existed in its own right and was a collection of colonies. The country’s first national bank, The Bank of North America, was chartered in Philadelphia to assist with the government’s finances, and the US Dollar was selected as the nation’s monetary unit in 1785. Notes were introduced in 1861 when they were required to aid in financing the Civil War, and in 1863, the national bank was given the power to purchase US bonds and distribute money. In 1913, the Federal Reserve Act created a single central bank and an organised system of national banking.
The US economy is very strong, being the biggest global producer of natural gas and oil. As the world’s second-largest manufacturer, the US represents 20% of global manufacturing output. The United States also has a strong services industry, and of the 500 biggest companies in the world, almost 130 of them have their headquarters in the US.
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Guide to the Czech Republic Koruna
The Czech Republic’s official currency is the CZK, or Czech Koruna, represented by the symbol Kč. Each Koruna is divided into 100 haléřů. Although there were once plans for the Koruna to be replaced by the Euro in 2012, there was a lot of opposition within the country to this idea, which led to the plan being indefinitely delayed. The makes the Czech Republic somewhat unusual within the European area, as the majority of the other countries have adopted the Euro as their single currency.
The Czech Republic has a developed economy with its main focus being on industrial production. The majority of the nation’s GDP income comes from service and industry, and the country has an unemployment rate of 6.5%. The primary industries are armaments, glass, metallurgy, machinery and motor vehicles. The main exports include chemicals, equipment for machinery and transport, fuel, and raw materials.
The first Czech Koruna was based on the German Krone and was introduced in the year 1892. In 1919 a new Koruna was issued, which was equal in value to the Austro-Hungarian Krone, and at the same time paper notes were released, with the first Koruna coins launched in 1922. In 1939, the Czech currency became subdivided into three areas: Slovakia, Moravia and Bohemia. Although the Czechoslovak Koruna was reintroduced during 1945, it rapidly depreciated due to the war. There was a major change during the year 1953 when USSR bank notes were issued throughout the country, nullifying all state obligations, commercial papers and insurance stock. However, when Czechoslovakia was dissolved in 1993, the Koruna was once more divided into the Czech Koruna and the Slovak Koruna.
Benefits of Trading the USD/CZK Pair
The USD/CZK pairing is known as an exotic currency pair, as it involves trading a major currency (the US Dollar) with an emerging and developing currency (the CZK). Although these pairs are nowhere near as popular as the major or even minor pairs in Forex trading, there are still some advantages to opting for these exotic pairings:
- More predictable – As there is a lower volume of trade in this pairing there is a lot more predictability in the price action, and trade patterns are a lot easier to spot.
- Fewer traders – As the costs involved in trading these more exotic pairings is higher and there is less interest in the general market, only serious investors are exposed to the USD/CZK pairing trade opportunities, and this allows for potentially greater profits.
- Diversification – Choosing a pair such as the USD/CZK allows serious investors the opportunity to diversify their investment portfolio and to try something a little unusual.
- Challenging opportunities – Due to the less tried and tested nature of this exotic pairing, traders have more opportunities to develop their own trading strategy and to experiment with it.
Due to the risks of trading a lesser-known pairing like the USD/CZK, it should be emphasised that this type of transaction is better suited to those with more experience of the financial markets.