What is Foreign Currency Exchange Rate?

The prevailing exchange rate of a foreign currency is one of the most sought-after financial figures by exporters, importers, investors, tourists or even ordinary citizens who have several dollars towed away somewhere in the privacy of their homes. Even the ordinary citizens outside the United States hold on to their precious dollars hoping for an increase in the foreign currency exchange rate later on

Foreign currency exchange rate refers to the value of a certain currency based or compared to the rate of another currency. The value of the dollar for example is often used as the standard peg of most currencies in the third world. A foreign currency exchange is said to be increasing its value if it is gaining strength against the dollar even in terms of centavos.

The value or rate of foreign exchange is not always the same as it is prone to constant fluctuation depending on how the world economy is moving. Most people have their foreign currencies changed through banking institutions. However, others resort to non traditional money changers like traders since the latter have higher exchange rates.

Traders are very active in foreign exchange because they use the dollars they get for the payment of their imports. However, there are foreign exchange players who are into foreign exchange merely for speculation purposes.

The gold standard may also be viewed as a monetary system in which changes in the supply and demand of gold determine the value of goods and services in relation to their supply and demand.

The value of a certain currency increases depending on the actual demand for such currency. The more demand for a specific currency, the higher rates it will command. A currency that has been devalued or has a probably chance of being devalued will not be actively traded. A country’s political or economic crisis can cause the devaluation of its currency.

People who trade foreign currencies are said to be engaged in Forex or foreign exchange. The forex market is not really a physical market where a certain quantity of currency is bought and sold, much like the situation in the stock exchange market.

Forex players around the globe may not have a physical institution to regulate their transactions but they are the most connected people in the world, monitoring their transactions through the internet, fax machines and the telephone.

The major players in the foreign exchange market are the large banks that transact with each other based on an established credit between and among them. However, even the non traditional players profit largely from foreign currency exchange.

People who invest and trade in the foreign exchange market can make or lose as much money as they are willing to gamble since the foreign exchange market is operational for twenty four hours a day. Trading starts in Australia and moves to Tokyo, Japan and then to London.

Unlike the stock exchange which can be manipulated through insider trading and other factors, the foreign exchange market is generally safer because it is influenced by world events and economies. Thus, most people prefer to speculate on forex.

For more information and tips about Forex Trading visit us at =>http://www.ForexTradingSpot.net

Article Source: http://EzineArticles.com/?expert=Kenny_Yong