Currency markets nowadays are some of the highest jotter trading markets in the universe, obsessed the more and more global and connected area of the globe's economic bazaar. Convert rates are bound to for the cohesion of these markets. Interchange rates are a servicing of the aggregate economic life of many humans, and are not establish or firm by any one brannigan.
Demand for Foreign Goods
Exchange rates that are determined by supply and demand are called floating exchange rates, and are the most common type of exchange rate regime today. However, some currencies (especially currencies in the developing world) operate differently. "Pegged" exchange rates are either fixed to some value or adjusted to that value. "Fixed" exchange rates are exchange rates that have a direct convertibility with another currency. However, both of these currency regimes only function because central banking authorities buy and sell currency, as they do not inherently respond to market supply and demand as floating rates do.
In our two simple examples, a Frenchman gives up euros for dollars and an American gives up dollars for euros. One could imagine, really, that this was a personal transaction: The Frenchman gave up some dollars to the American, who traded him some euros. Absolutely, this is exactly what happens in foreign exchange markets, except that instead of two consumers, there are millions, all of which can trade currencies in the global marketplace with anybody else.
Exchange Rates
Exchange rates occur when both sides of the marketplace for currency come together and make transactions. The forces of aggregate supply and aggregate demand will make the market come to equilibrium, at an exchange rate that equalizes the forces of supply and demand. Exchange rates fluctuate to keep the quantity demanded and the quantity supplied of currency the same--and the relative price of a currency (the exchange rate, or price in terms of other currencies) will be determined entirely by the demand and supply for that currency arising from aggregate economic activity.
Other Exchange Rate Regimes
When an American wants to assemble an economic process away of the USA (For instance, importing products from Belgium), he enters the bazaar for Non-native transform to striving to procure Non-native currency. The American pays in dollars for units of Non-native currency (for our Belgium case history, units of euro). In this setting, the American buyer "demands" euros and "supplies" dollars. The alternate standard determines how many dollars the American must bestow up for how many euros he wants to get.
