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Exchange rates determine the value of different currencies and are constantly changing. Without them, international trade and travel would be difficult. Currency traders aim to profit from exchange rate fluctuations.
Yen, euros and dollars are all kinds of currencies. Exchange rates refer to the prices of buying, selling or converting money. Unless one currency is tied to another, exchange rates are constantly changing. Since these rates can change, thus affecting the values of different currencies, many people turn to the foreign exchange (FX) market as a means of making a profit.
Without exchange rates, international trade would be very difficult. It would also be very difficult for a person from one country to travel to any other country that uses a different currency. These difficulties would arise from the fact that in most countries only one type of currency is widely accepted. Without that type of currency, transactions cannot take place. Without exchange rates, a system that would provide the value of one currency in comparison to another would not be established.
When a person has one type of currency, such as the yen, and wants another type of currency, such as the euro, they must buy that money. The party that has the desired currency and provides it to the party that wants it in exchange for another type of currency is the seller. The exchange is usually made based on an internationally recognized price known as the exchange rate. For example, 10 euros can buy 1,000 yen.
Although according to the current exchange rate 10 euros should buy 1,000 yen, it may actually require 12 euros to get 1,000 yen. The extra two euros is likely to be a commission and a fee. Such charges are often added to the exchange rate to provide profit to those who provide exchange services.
When one currency is linked to another, there is a fixed exchange rate. If, for example, the yen were pegged to the euro, 1,000 yen would always equal 10 euros. However, most currencies are not pegged, which means their value is constantly fluctuating. Exchange rates can move in favor of or against any particular currency, resulting in gains and losses, depending on what currency a person holds and when they exchange it.
Consider the example above where a person exchanged euros for yen at a rate of 10 per 1,000. If the yen strengthens, that individual can take the 1,000 yen to the exchange point and buy 15 euros. This happens when exchange rates fluctuate in a way that makes one currency more valuable than it previously was and another currency less valuable than it previously was.
Since the value of the currency fluctuates in this way, many people become currency traders. These people aim to use exchange rates to their advantage. Your goal is to buy coins and sell them for other coins at times when profits can be made.
Smart Asset.
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