“Xeno” stems from the Greek word for foreign. Financial experts prefer to use the term “foreign currency” because of the negative connotations that can be associated with the prefix xeno-.
Investing in xenocurrencies can be risky due to the instability and difficulties in currency conversion. An investor’s profit or loss is dependent on several factors but mostly on the conversion rate in the market.
Example of Xenocurrency
The U.S. dollar is an example of a widely recognized xenocurrency. It is used and held by individuals, businesses, and central banks outside the United States.
In the same way, the Euro and the Japanese Yen are also considered xenocurrencies because they are used in global transactions.
How does Xenocurrency work?
If the naira trades in a foreign market that is not Nigeria, the naira is referred to as a xenocurrency. This applies to any other currency that is held or used in transactions outside of the country in which it was issued by the designated financial institution.
Roles of Xenocurrency in the International Market
1. The xenocurrency market accounts for international trade, foreign investments, and global financial integration.
2. It helps businesses and investors manage their exposure to currency risks by giving them the means to hold or transact in multiple currencies, depending on their needs.
3. It allows companies and individuals to hold and transfer large amounts of money without being subject to the regulations and restrictions that exist in their home country.
4. Xenocurrency markets also provide a source of funding for banks and corporations, as they can borrow money in one currency and lend it in another, taking advantage of differences in interest rates and currency exchange rates.
Key point
Xenocurrency is a currency that trades outside its domestic domain. It makes it possible for foreign investments and international trade to happen seamlessly in the financial market. The more frequently used terms are “eurocurrency” and “foreign currency”.
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