Currency Exchange Rates Flashcards, test questions and answers

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What is Currency Exchange Rates?

The exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency. Exchange rates are determined in the foreign exchange market, which is open to a wide range of different types of buyers and sellers, and where currency trading is continuous: 24 hours a day except weekends, i.e. trading from 22:00 GMT on Sunday until 22:00 GMT Friday. The most important factor influencing exchange rates is the balance of payments between countries that’s when countries buy and sell goods, services and financial assets with each other. This influences demand for certain currencies relative to others, thus influencing their relative value on the foreign exchange market. When a country experiences trade surplus it exports more than it imports its currency will usually appreciate in relation to other currencies due to increased demand for it on international markets as people look to purchase this surplus product or service. On the flip side, if a country has a trade deficit importing more than it exports its currency will often depreciate due to decreased demand from investors looking to invest their funds elsewhere with better return potentials Other factors such as inflation levels, interest rates, political stability and economic growth can also influence exchange rates; however these are less influential than balance of payments data when determining short-term movements in foreign currencies although longer-term trends can often be attributed to these factors too. In conclusion, many different elements influence changes in currencies’ exchange rates over time; from global macroeconomic conditions such as GDP growth or inflation levels all the way down to geopolitical events such as wars or government elections that can cause sudden shifts in investor sentiment and risk appetite towards different nations’ economies – all these things play into how much one unit of one particular country’s money buys you when exchanging into another nation’s money today compared with yesterday or last week etc.