A currency in the simplest sense is the currency in any shape or form when in circulation or use as a medium of trade, particularly circulating foreign coins and banknotes. A single unit of currency represents an exchange rate against another that is usually denominated in some other currency. The value of a specific currency is typically decided by its supply and demand within the global market. There are many factors which may affect the value of a particular currency such as its supply and demand, political turmoil and unrest, and the like.
The physical money supply, also called the M2, is the amount of physical currency outstanding. Money is typically created out of legal tender, namely by governments, banks, public institutions, and other bodies corporate and for private use. The supply is controlled by law through the control of the printing press, which limits the amount of currency that can be printed. There are different types of physical money including coins, banknotes, and paper notes.
The most widely traded currency is the US dollar followed by the British pound, the Euro, the Japanese yen, and the Swiss franc. Other widely traded but lesser known currencies include the Canadian dollar, the Australian dollar, and the Swiss franc. All these currencies are recognized the world over and generally accepted by most merchants and companies that accept payments in those currencies. Major world financial markets are the Forex market, the ACM, and the OTCBB.
On the other hand, there are other currencies that are recognized only for their trade value and not for their actual value when exchanged. These currencies are the Currencies of the World (COW), the Australian dollar, the Euro, the Singapore dollar, the Swiss franc, the Canadian dollar, and the Swiss mark. These currencies are generally traded between major world currencies and are recognized by their respective central banks. In order to obtain information on the exchange rates for any of these currencies, you will need to visit their respective websites where you will find detailed information about the exchange rate for the particular currency. For instance, the Euro/USD or the Australian dollar/USD for the Euro, or Swiss franc/Swiss franc for the Australian dollar.
Another widely used currency is the paper note which is basically a legal document that is signed by a government or an official of a country with the purpose of borrowing money from an external source. These currencies are called “fiat” notes because the value of these currencies never declines. Paper notes are traded back and forth between the various currencies that are in circulation. Paper notes are usually traded back and forth between a few major world currencies and they are generally traded back and forth between major world trading centers as well.
Trading goods between two different currencies is also referred to as trading commodities. One type of trading is the spot market, while another is the forward market. The spot market consists of trading activities that take place within the specific time frame of a specific day. The forward market is usually longer term and involves trading activities that take place over a number of days beyond the closing of each trade.
A third kind of foreign currency is the digital currency, which are often used in online transactions and it is valued by using a mathematical model. Digital currencies are very similar to the US dollar in that they are both traded back and forth between specific currencies. There is one major difference between them, digital currencies are not usually backed by physical assets. This means that if there was a sudden decline in the value of a specific digital currency, the software that operates the system would be able to compensate for the loss.
Most foreign exchange markets are open throughout the day but some of the largest and most frequently traded are those that are open twenty-four hours a day. Most people are unaware of the fact that there are often hidden costs associated with any exchange trade. Although there are thousands of people who are knowledgeable about money vs currency exchange rates, many of these people may not be familiar with some of the subtle costs that can occur that can offset any advantages that may be obtained. When you exchange money you should be aware of the cost of any conversion.