Getting Acquainted with Currency Rates – First Step Towards Forex

Currency rates are the rates of two currencies of two different nations and when they are traded into an open market, they become commodities. It is therefore important to know what is the rate of the currency when one wants to try one’s hand at foreign exchange market. The main purpose of currency rates is to reflect the economic health of the country. The price of the currency can be determined by two ways: first, it is fixed by the government and is considered to be the official foreign currency rate. It is usual that currency rates are fixed against the world’s major currency, usually U.S. dollar. Also, it is typical economical tactic that in order maintain local exchange rate, the central bank of any country enters into buying or selling of its own currency against which it is fixed. This way is very common in any country in order to balance its economy.

Another way to get the currency rates determined is floating exchange rate. In this way of determining the currency rates, it is the private market that plays the role. This rate is decided by the supply and demand law of the private market. Interestingly, this rate is often known as “self correcting” as well because the differences in supply and demand will automatically reflect in the  currency as well. It is as simple as that: if the currency rate is low, the value in the foreign exchange market will decrease, therefore, imported goods will be more expensive and if the demand increases, the value will obviously increase in the foreign exchange market. Therefore, floating exchange rate is constantly fluctuating and so is foreign currency rate. It is due to this fluctuations that it is important to have basic understanding of currency rates in foreign exchange market.