The concept of currency refers to a currency used in a region outside its origin. In other words, it’s a foreign currency. Thus, the British pound sterling is a currency outside the borders of the United Kingdom and the US dollar is a currency outside the United States.
The foreign exchange market is the largest market in the world and with more liquidity. Unlike other markets, this has neither a physical location nor an exchange to centralize financial transactions. The buying and selling of foreign exchange is carried out through networks, which are connected with corporations, banks and individuals who buy or sell foreign exchange. Currency
A tool that facilitates business relationships
Before the advent of money, the only mechanism to acquire a product was through exchange, that is, exchanging goods. The downside of this system is obvious: people involved in the business need to find something they are looking for. After the exchange, trading began in metals, especially gold and silver. However, this modality did not have an exact price system. With the emergence of currencies, trade can expand rapidly.
The use of foreign exchange primarily serves as a means of exchange. For some, having currency represents a store of value, as it could be a jewel, a work of art or a kilo of gold. This consideration is debatable, as any currency devalues over time and therefore holding foreign exchange for years can be a bad business.
The exchange rate and the foreign exchange market
If we relate euros and dollars, the exchange rate would be the amount of euros needed to get dollars. If the euro is the national currency and the dollar is the currency, the exchange rate indicates the value of each of these currencies. In this way, an increase in the exchange rate means that you have to pay more euros to get more dollars (in this case, the dollar is worth more and the euro less and depreciates against the dollar). Currency
Naturally, the exchange rate between the two currencies is a determining factor for the foreign exchange market. Remember that in every commercial relationship between countries it is necessary to exchange currencies (you must buy dollars to buy in the United States, just as you have euros to buy in Europe). This situation creates a market between currencies and like any other market there is no supply and demand.