Exotic Currency

What is an Exotic Currency?

Exotic currencies are currencies that are thinly traded in foreign exchange markets and are not widely utilized in global financial transactions.

Figuring out Exotic Currencies

An exotic currency is a foreign exchange term for a thinly traded currency. Exotic currencies are illiquid, lack market depth, can be very unpredictable, and trade at low volumes. Trading an exotic currency can be costly, as the bid-ask spread is generally large to make up for the lack of liquidity.

Exotics are not viewed as major currencies since they are not effortlessly traded in the foreign exchange market, substantially less a standard brokerage account. Furthermore, exotic currencies are generally inseparable from creating or emerging market countries and are in many cases subject to partial or total exchange rate controls that render them nonconvertible.

Instances of exotic currencies incorporate the Thai baht, the Uruguay peso, and the Iraqi dinar. Then again, major currencies incorporate the U.S. dollar, the euro, the Canadian dollar, and Swiss franc — all from developed countries with large economies and trading connections.

Factors that influence exotic currencies contrast from major currencies. The predicament of a major currency will rely upon the soundness of its economy and the interest rate differential, while exotic currencies will frequently continue on changes in the political scene. In times of political unsteadiness, an exotic currency will deteriorate at a quick rate.

Alongside less liquidity, exotic currencies generally have higher volatility due to the delicate idea of the associated nation's economy. Along these lines, investors who wish to trade them will require higher edges in their brokerage accounts to allow for any critical adverse change in the rate of the currency.

Features

• Exotic currencies are currencies that are thinly traded in foreign exchange markets and are not widely utilized in global financial transactions.
• Exotic currencies are illiquid, lack market depth, can be very unpredictable, and trade at low volumes.
• Exotic currencies are generally inseparable from creating or emerging market countries and are in many cases subject to partial or total exchange rate controls that render them nonconvertible.