Parallel Markets for Foreign Exchanges

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Onour, Ibrahim A.
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University of Khartoum
A nominal exchange rate is the price of a unit of foreign exchange in domestic currency. An increase in a nominal exchange rate is a depreciation of the domestic currency and a decrease is an appreciation. When an exchange rate is pegged or managed, a discrete change in its official value is referred to as a devaluation or revaluation (a devaluation if the rate goes up and a revaluation when the rate goes down). A maxi-devaluation is a large, one-time devaluation of pegged or managed exchange rate. A real exchange rate is a nominal exchange rate that is corrected for relative purchasing power to yield a measure of external competitiveness. A real appreciation (depreciation) means an increase (decrease) in the purchasing power of domestic currency in foreign markets relative to domestic markets. A parallel foreign exchange market refers to an illegal foreign exchange market that coexists with the official market for foreign exchange. Restrictions on transactions at the official rate lead to the creation of an illegal market, in which transactions take place at parallel rate. The official exchange rate refers to the most important legal rate. The parallel market premium is defined as the ratio parallel exchange rate to the official exchange rate. The official current account balance is the difference between officially recorded foreign currency inflows and outflows of current account transactions. The private current account balance (or parallel current account balance) is the difference between the overall current account balance (which may be unobservable because of illegal trade) and the official current account balance
Parallel Markets ; Foreign Exchanges