The values of foreign exchange currencies are determined by the FX (Foreign Exchange) market. This is a global, decentralized market that looks at how much each of the currencies are valued, relatively speaking. The exchange rates, effectively tell you how much a chosen currency is worth when compared to a second currency. For instance, if the exchange rate is 2USD for 1GBP, it means you will receive $2 for every British Pound if you were to exchange it.
Floating and Fixed Foreign Exchange Currencies:
An exchange rate can either be floating or fixed. If it is floating, then the market conditions will determine the value compared to another currency, which means it changes all the time. If it is fixed, the exchange rate is always predetermined, and a provision is made should one currency devaluate. It should be noted that the vast majority of currencies use the floating rate system.
Floating Foreign Exchange Currencies Rates:
Demand and supply determine what the rate of foreign exchange is. So, if demand rises in one currency, or supply falls, the exchange rate goes up. On the other hand, demand drops or supply goes up, then the rate depreciates instead. Supply and demand vary depending on the trade system. The supply of US dollars, for instance, depends on how much demand there is for important and export products. If fewer products are exported out of the country, the value of the dollar will drop. The equilibrium between supply and demand is what ultimately determines the exchange rate.
However, a significant factor in determining the exchange rate is also speculation and currency trading on the Forex market. People trade currency in the same way as they do bonds and stocks. If some people speculate that dollar demand will drop, they will sell their USD and thereby cause some reduction in its value.
Trends in Foreign Exchange Currencies:
The foreign exchange currencies change very rapidly based on how the global economy is doing. There are a number of currency pairs, however, that always seem strong. These are the USD and Euro, the USD and the GBP, and the USD and Japanese Yen. The Forex market has existed for over 100 years and various trends have been formed that seem to repeat themselves again and again. There are three ways to look at these trends: daily trends, intermediary trends and long term trends. The long term and intermediary trends are mainly linked to the state of the economy, whereas the daily trends are linked more strongly to the Forex markets and speculators in currencies.
These are the most vital parts of Forex trading. If you were to be interested in speculating on that market, it is very important to do a lot of research to gain a greater understanding in how it all works. Many people find Forex trading a lot of fun, not in the least because it is accessible to those with only small amounts of capital. If, however, you simply want to know what the exchange rate is because you are going on vacation, then a quick online search will be all you need.