The term “currency” refers to any form of actually used money, or to the money in circulation.When proceeding the foreign exchange transactions in the market, the currency is always paired.
Convertibility of currency plays an important role in determining its position in the market. Convertibility refers to the ability of an individual, a corporation or government to exchange one currency for another without the mediation of the central bank or any other government intervention. US Dollar – one of the most traded currencies in the market, because the currency is easily convertible. There are three types of convertibility: currencies are fully convertible, partly convertible and non-convertible.
Fully convertible currencies such as the US dollar or the Japanese yen, have no restrictions on the amount that can be exchanged for other currencies. In addition, the government does not set a fixed or minimum rate at the currency exchange.
Partially convertible currencies such as the Indian rupee, controlled by the central banks, which are responsible for international investments. This means that there are some restrictions on the international investments in that currency. Partially convertible currency exchange requires a special permit.
Non-convertible currencies, such as the North Korean Won is a blocked currency. These currencies are not involved in operations in the markets, and their exchange is prohibited to individuals or corporations.
Currency trading is very popular because of their high liquidity and opportunity to sell them at any time of the day on weekdays. These factors, as well as the widespread prevalence rates, and exchange rate fluctuations, made the currency a unique and desirable object for trading.