Forex glossary
Central banks
Institutions that conduct monetary policy under their respective mandates. Their objectives and actions do not amount to one shared currency speculation strategy.
Illustrative example
How does it work in practice?
Suppose a fictional central bank changes its policy rate to pursue its price stability mandate. That is a monetary policy decision, not evidence that the institution is betting on a particular currency pair for profit.
A case to work through
One market, different roles
A fictional file contains a monetary-policy decision and a bank currency conversion for a customer.
- Check the institution and stated purpose.
- Assign the policy decision to the central bank and customer service to the commercial bank.
What follows? Do not infer a policy mandate simply from trading FX.
Example boundary: Similar instruments can serve different purposes.
A useful distinction
Central banks / Commercial banks
A central bank pursues its policy mandate; a commercial bank provides services and manages its own exposures.
Check your understanding
Identify an institution's role from its purpose and decision document.
Show the answer and explanation
Purpose and the responsible institution
These distinguish policy from customer service.
Reading central-bank decisions
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Related terms
Sources and documentation
- Transmission mechanism of monetary policy – ECB
Describes transmission channels and long, variable, uncertain policy-effect lags.
Document read: - Policy interest rate – Bank of Canada
Identifies the Bank of Canada's policy rate and announcement versus effective timing.
Document read: - Introduction – ECB monetary policy
Describes common euro-area policy and implementation through the Eurosystem.
Document read:
The example illustrates the mechanism. Check current account conditions and instrument specifications with the provider.