Exchange rates

An exchange rate is the price at which one currency can be traded for another.

Exchange rates are determined by the supply and demand of one currency. In this case, factors affecting the demand are the interest rates in different countries, future views on a currency and the trade situation of a country (is it mostly importing or exporting?)

A strong currency, for example, is good for importers as it will make selling products in that country cheaper. For the exporter, it is bad as it makes products more expensive abroad, resulting in fewer sales.

The value of a currency is determined by those who buy and sell a currency. This could be companies aiming to make the highest profits, governments to maintain the currency at a certain level or foreign tourists like you and me.

The foreign-exchange markets (Forex) attract trillions of dollars every year as speculators try to guess trends in currency movements. However, this market is considered the most unpredictable and changing market of all.