ForEx Market

Foreign Exchange(Fx) Market is the most traded and liquid financial market where individuals, firms and banks buy and sell foreign currencies. Forex market constitute of monetary counters connected electronically which are in constant contact forming a single international financial market. The market remains open 24 hr a day for five working days of a week (fxIntro).

Currencies are exchanged for activities like trade, tourism and investments in another countries. For instance, a person visiting France needs euro since euro is accepted in France. On returning back from the visit (s)he might want to exchange back those Euros to Norwegian Krone. This transaction is affected by the exchange rate of Norwegian Krone per Euro. The exchange rate of NOK per Euro over time is plotted in figure-(fig:tsPerEUROPlot).

Exchange rate can be set according to different macroeconomic variables, such as interest rate, price index, balance of payment etc. Such exchange rate determined by ForEx market transaction is called Floating exchange rate. Some country fix exchange rate while others pegged with other currency. Norway has a floating exchange rate.

The Norwegian krone (NOK)

After introduction of Krone in April 1875 (NorBnkHistory), Norway was pushed to join the Scandinavian Monetary Union established on 1873 (nokHistoryOanda). Although the Union was formally abolished on 1972, Norway decided to keep the names of its currencies. In December 1982, due to heavy speculation, Norges Bank (Central Bank of Norway) decided to fix Norwegian Krone which later floated on 1992 (NorBnkHistory).

EURO

Euro, the official currency in the Eurozone, was introduced as a virtual currency in 1999 and later as physical in 2002. It is the single currency shared by 19 of the European Union’s Member States of Euro Area. Although European Central Bank (ECB) manages Euro, the fiscal policy (public revenue and expenditure) are in the hands of individual national authorities. The single currency market throughout the euro zone not only makes traveling across the countries easier but also helps the member country to keep their economy sound and stable. This situation removes currency exchange cost, smooth international trade and consequently gives them more powerful voice in the world. A stable economy and larger area protects euro zone from external economic fluctuations, instability in currency market and unpredictable rise in oil prices.(euro2015ecb)