The exchange rate is a continuously changing parameter of modern reality, affecting both everyday life (prices of goods and services) and business and politics. How is the exchange rate established?
Instructions
Step 1
Hundreds of years ago, in the era of coins made of precious metals (gold, silver), the most important characteristics of money were their weight and purity of the material. When trading between different countries, at first there was no exchange rate at all - the money was weighed and, if necessary, chopped up.
Step 2
With the advent of paper money, it became necessary to maintain currency standards. Money changed in accordance with the "gold standard". The currency was worth as much as gold could be paid for it upon immediate appeal to the bank. With the growth of the economy and the general welfare of the population, gold alone was not enough. Money began to be provided with more goods.
Step 3
The arrival of electronic money and bank accounts in the arena, the development of the international economy led to the fact that currency fluctuations began to increase. If in 1976 1 American dollar was exchanged for 10 French francs, after ten years it was worth only 6. There was a need for daily changes in the exchange rate.
Step 4
Now the exchange rate is being adjusted every second. Its movements are regulated by the International Monetary Fund (IMF) and the free market. Foreign exchange transactions bring large profits to international banks, serving as intermediaries between the economies of different countries.
Step 5
The cost of the currency for the seller (Ask) and the buyer (Bid) differs, and the difference itself is called the spread. The currency is influenced not only by the provision of the state, but also by political, social processes, the likelihood of military conflicts. The more often a currency is bought, the higher its parity (confidence indicator). As the parity grows, so does the value of the currency.
Step 6
Free convertible currency (FCC) has an advantage in the market, which freely changes to other currencies and has the confidence of the IMF. Today, hard currency includes the dollar, euro, Japanese yen.
