CURRENCY EXCHANGE RATES

Currency exchange rates at Forex or any part of the world refers to how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency. For example, the currency exchange rates of the EUR/USD and the USD/JPY.

1 EUR = 1.4029 USD To buy one euro you have to pay 1.4029 U.S. american dollars.
1 USD = 90.3668896 JPY To buy one U.S. american dollar you have to pay 90.3668896 Japanese yen.

The currency exchange rates quotations are given by stating the number of units of "quote currency" (price currency, payment currency) that can be exchanged for one unit of "base currency" (unit currency, transaction currency). For example, in a quotation that says the EUR/USD exchange rate is 1.4029 (1.4320 USD per EUR, also known as EUR/USD; see foreign exchange market), the quote currency is USD and the base currency is EUR.

How varied the currency exchange rates? The currency exchange rates vary depending on the two component that conforms its value: it those change, the currency exchange rates will do it too. If the demand of the currency increase, it will tend to be more valuable; otherwise, whenever the demand is less than the available supply, it will be less valuable.

Which are the factors that may affect the currency exchange rates? The transaction demand for money is highly correlated to the country's level of business activity, gross domestic product (GDP), and employment levels. The more people there are unemployed, the less the public as a whole will spend on goods and services.

How does the interest affect the currency exchange rates? Central banks typically have little difficulty adjusting the available money supply to accommodate changes in the demand for money due to business transactions. The speculative demand for money is much harder for a central bank to accommodate but they try to do this by adjusting interest rates. An investor may choose to buy a currency if the return (that is the interest rate) is high enough. The higher a country's interest rates, the greater the demand for that currency.

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