This research project covers the impact of currencies on international investments. Currency exchange rate fluctuations are the main drivers of international investment decisions. Trading international currencies involve predicting the rise or fall of the exchange rate between two currencies. Foreign exchange trading involves the exchange of one currency to another. Complications in decision areas of international investments may arise from issues of dividends, brokerage commissions, or other transaction costs. For this project, we will review the USD/JPY currency pair. It includes the U.S. Dollar and the Japanese Yen. In this case, the value of the pair represents the value of one dollar in the Japanese currency.
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IMPACT OF CURRENCIES, THE U.S. DOLLAR AND THE JAPANESE YEN (USD/JPY)
Many find a complicated proposition in trading the USD/JPY currency pair. However, when you understand the Japanese yen in terms of U.S. Treasury bonds, notes, and bills, it becomes less complicated. This way, foreign exchange trading of the USD/JPY must involve having a fundamental knowledge of how the pair works in relation to treasury bonds. Interest rates in both Japan and the U.S. are of significant importance for making decisions on international investments. This means the pair is a measure of risk that determines when to buy or sell the USD/JPY in terms of interest rates. The direction of interest rates can determine the direction of this pair.
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CURRENCY RESERVES AND USD/JPY RELATIONSHIP WITH TREASURIES
The USD/JPY currency pair has a close correlation with U.S. Treasuries. When Treasury bonds, notes, and bills rise, USD/JPY prices weaken. The logic of investing in this currency pair is that the U.S. would never default on its bond obligations. This provides a secure, safe-haven status, thus making this allocation a long position for international investments. When interest rates are heading higher, Treasury bond prices will go down. This lifts the U.S. dollar and, in turn, USD/JPY prices strengthen. Here, the market is in search of yields from Treasury trades and a lower USD/JPY price, making this a short position. Such information helps one to become an expert in foreign exchange trading. The two currencies also serve as reserve currencies in most central banks.
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