The trading of currencies on an international scale takes place in the foreign exchange market, called Forex for short. The currencies are exchanged in a small and large scale. A fixed exchange rate is authorized by certain governments among currencies and does not permit the free market to establish prices.
Since fixed exchange rate is determined by a government, it aids in making economic standing more stable. For instance, prior to the usage of the Euro, majority of the European countries agreed to connect their currencies in order to aid in steadying exchange rates. The euro now efficiently works by fortifying exchange rates lastingly, since it has the equivalent value in all the affiliate countries.
There are those who make use of a floating exchange rate which is determined by the foreign exchange market to arrive at a price balance. In this case, the price changes in forex trading tends to fluctuate constantly, as there are many unpredictable factors that can cause it.
In a small scale, an individual is involved in foreign exchange trading when he travels. When he gets hold of foreign currency before or after they have arrived in another country, they are nevertheless play a role in the global currency market. On a broader perspective, banks and financial institutions play a major role in forex in order to attain revenue. A profit can be made if an establishment re-sells a currency if it was bought before it went up in value.
A floating exchange rate is what the United States has been practicing. Since this is settled on by the foreign exchange market, a lot of varying factors can cause it to change quickly.
The economic conditions of a country is one factor, and inflation can cause the value of its currency to go down. A high GDP will augment the currency's value.
The political state of a country can also affect the value of its currency. If there is social unrest, then the value of the currency is most likely to go down. A more steady country means a more reliable currency value rate, thus more investors are willing to put their money on it.
Since fixed exchange rate is determined by a government, it aids in making economic standing more stable. For instance, prior to the usage of the Euro, majority of the European countries agreed to connect their currencies in order to aid in steadying exchange rates. The euro now efficiently works by fortifying exchange rates lastingly, since it has the equivalent value in all the affiliate countries.
There are those who make use of a floating exchange rate which is determined by the foreign exchange market to arrive at a price balance. In this case, the price changes in forex trading tends to fluctuate constantly, as there are many unpredictable factors that can cause it.
In a small scale, an individual is involved in foreign exchange trading when he travels. When he gets hold of foreign currency before or after they have arrived in another country, they are nevertheless play a role in the global currency market. On a broader perspective, banks and financial institutions play a major role in forex in order to attain revenue. A profit can be made if an establishment re-sells a currency if it was bought before it went up in value.
A floating exchange rate is what the United States has been practicing. Since this is settled on by the foreign exchange market, a lot of varying factors can cause it to change quickly.
The economic conditions of a country is one factor, and inflation can cause the value of its currency to go down. A high GDP will augment the currency's value.
The political state of a country can also affect the value of its currency. If there is social unrest, then the value of the currency is most likely to go down. A more steady country means a more reliable currency value rate, thus more investors are willing to put their money on it.
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