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Currencies |
| SWISS FRANC |
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| Introduction
| Overview | Structure
| History | Factors
affecting change in exchange rates | Daily
trend of Swiss franc | Weekly
trend of Swiss franc |
| Introduction |
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Franc is the name given to the currencies that act as a medium of
exchange in several economies and countries of the world. The
countries that have used or have been using franc as their
official currency include France in the first place with
Switzerland, also including Belgium, Democratic Republic of Congo,
Burundi, Rwanda, Djibouti, Guinea, Madagascar, Union of Comoros
and the CFA - union of 14 French-ruled African countries. All
these different franc currencies are depicted by different symbols
but all of them have the same subunit i.e. "centime".
The word franc got its derivation from the Latin language phrase
taken up from the early French coins "francorum rex"
meaning "the king of the franks".
The most dominant franc currency that is still in operation is the
Swiss franc and as the name suggests, it is official currency of
Switzerland. It is counted among the five strongest currencies in
the world along with the US dollar, euro, Great Britain pound and
Japanese yen. The ISO 4217 currency and numeric codes for the
Swiss franc are CHF and 756. The currency was adopted as a medium
of exchange in Switzerland in 1850 when it replaced the different
currencies of the Swiss cantons.
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Overview
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Swiss franc as mentioned earlier, is ranked among the five most
important currencies of the world. The official currency code for
the Swiss franc is CHF that stands for Confoederatio Helvetica
Franc, Confoederatio Helvetica being a Latin word meaning the
confederation of Helvetians. Prior to 2002, the French franc use
to be the strongest currency among the franc currencies of the
world but after the French switchover to the euro, Swiss franc has
taken over that position although it is the only version of the
franc currency left in the European continent. The economy of the
country does not find its place among the top five economies of
the world but there’s a different case with the currency of the
country mainly because of its demand and the state of art banking
system making it an investor’s paradise. That is why, the
principality of Liechtenstein has dollarized the Swiss franc as
its national currency.
Before the introduction for the new currency
for the European continent, the Swiss franc was tracking the
German deutsche mark but currently it is being matched to the
euro. Due to the fact that the country’s economy is stable and
conservative, the currency fluctuates mostly due to the external
factors rather than the domestic conditions. The Swiss franc is
also popular and is demanded as reserve currency through out the
globe. Switzerland is one of the major holders of gold i.e. the
fourth largest in the world and that is why, the currency has an
approximate of 80% correlation with gold and is featured with low
interest rates.
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Structure
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The issue of Swiss coins marked the introduction
of the currency in the year 1850 for the first
time in history. The currency is subdivided into
centimes as its subunit with 1 franc = 100
centimes. Actually, "franc" and
"centime" are French words for the
currency and its subunit but as the country has
three national languages, the terms are also
known as "franken" and "rappen"
in German and "franco" and "centesimo"
in Italian. The coins of the currency are almost
the same in appearance as they use to look in
the 1880s with some minor changes. The obverse
side of the coin shows a majestic figure of a
lady with a ring of 23 stars denoting 23
cantons. There are 8 denominations in which the
Swiss franc coin is minted that are 1 centime,
5,10,20,50 centimes, 1 franc and 2,5 francs. A 2
centime coin also existed in the past but it is
not produced now since 1974 and is not accepted
anywhere in the country. Apart from the currency
coins, some commemorative coins and gold coins
generally known as "Vreneli" are also
into circulation.
The Swiss bank notes came into existence in
1907. Till now, 8 series of banknotes have been
printed since the inception of the currency and
6 of them have been released for the use of the
public. The notes are available in 6
denominations i.e. 10, 20, 50, 100, 200 and 1000
francs. The 200-franc note has been introduced
into the last series only in place of 500-franc
note. The central bank in the country is the
Swiss National Bank that manages the currency
transactions and help in the circulation of the
Swiss notes. The responsibility to mint coins
for the currency is held by the Swiss mint.
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| History |
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Prior to induction of Swiss franc as the official
currency, 25 Swiss cantons and half cantons, 16
cities, abbeys, totaling up to 75 separate entities
had their own currencies and coins, which resulted in
an absolute economic chaos in the country. There was a
very high percentage of foreign currency share i.e.
more than 85% in the total money circulating in the
country. For the purpose to improve this situation,
the federal government was given the sole authority to
produce money in the country according to the new
Swiss Federal Constitution in 1848. The federal
assembly passed the coinage act in 1850 adopting the
Swiss franc as the national currency that replaced all
the other currencies in circulation and at first it
was issued at par with the French franc.
In 1865, Latin monetary union was
formed when the countries including France, Belgium,
Italy and Switzerland agreed to fix up their
respective currencies to 4.5 grams of silver or
0.290322 grams of gold but the union got dissolved in
1927 due to the problems faced by the member
countries. Swiss franc still continued to keep the set
standards when finally it gave it up in 1967. The
currency had been strong since its introduction except
for one phase during the Great Depression in 1936,
when it got devalued by as high a margin as 30%. 8
series of banknotes have been issued since 1907 but
two of them were not circulated for the public use. 1
among them was the 7th series that was issued as a
result of precaution due to the sudden threat from the
problem of counterfeiting.
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| Factors
affecting the exchange rates between two countries
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The volatility in the foreign exchange rates
depends upon a numerous macro economic factors that
have different degrees of importance to different
economies of the world. Some special and exceptional
factors affecting the rates may also exist in the case
of different countries. Following are shown the common
factors on which the foreign exchange rate depends
- Flow of imports and exports between the
countries
- Flow of capital between the countries
- Relative
inflation rates
- Fluctuation limits on exchange rate
imposed by the governments of the countries
- Merchandise trade balance
- Rate of inflation in the country
- Flow of
funds between the countries for the payment of
stock and bond purchases
- Relative growth
- Short term
and long term interest rate differentials
- Cost of borrowings
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