Currency is the money underpinned by the legal tender system unique to a particular country or economic area. Currency gets used as a medium of exchange for goods and services.
Currency in the form of paper or coins gets issued by governments and central banks and is usually accepted at face value as a payment method.
A currency exchange rate is how much a unit of money is worth compared to a foreign unit. It is the price charged for purchasing the other currency. For example, 1 euro in January 2021 was equal to $1.203 U.S. dollars. If you used euros to buy dollars the rate was 1.203 dollars for every euro, ten euros got you 12.03 dollars.
Currency exchanges and foreign currency convertors are familiar to holidaymakers, and the facility is essential for international commerce. However, it’s the activity of foreign exchange traders determines the exchange rate for most currencies. Traders operate on the FX market, which has an estimated daily turnover of $5 trillion according to the Bank of International Settlements (BIS).
Currency rates fluctuate due to many reasons, particularly macroeconomic factors – such as interest rates, inflation and employment data.