Currency exchange rates are the rates at which two different currencies of two different nations are traded. Here, the currencies turn into commodities like any other commodity in the market and their foreign exchange rate is defined by currency rates. Currency rates are very crucial to any transaction in foreign exchange market. For example, if you are going for a vacation in U.S. and you are a Canadian citizen, you need to convert your Canadian dollar into U.S. dollar which require thorough knowledge of U.S. currency rates and also the prevalent global affairs. According to the experts, before plunging in the deep and dark sea of foreign exchange market, one needs to study the market thoroughly at least for six months.
Currency exchange rates are often divided into two categories: fixed and floating. A fixed exchange rate involves mutual agreement between the two countries to maintain a stipulated fixed rate through the use of monetary policy. A floating rate flexible in a sense that two countries agree to abide by the international market forces determine the rate through demand and supply rule. In this, the rates would undoubtedly fluctuate with a country's exports and imports transaction.
The world has adopted to this floating rate because it has proved to be more economically viable in spite of the fact that floating currency exchange rates are more fluctuating than the fixed ones. But, the biggest disadvantage of the fixed rates are they are decided by the government and therefore they tend to take into consideration political situation of the country rather than economic conditions of the country. For example, some countries peg their exchange rates artificially low with respect to a major trading partner to make their exports to that partner artificially cheap. Hence, currency exchange rates depend upon various factors and those factors contribute a great in determining foreign exchange rate.
Currency exchange rates are often divided into two categories: fixed and floating. A fixed exchange rate involves mutual agreement between the two countries to maintain a stipulated fixed rate through the use of monetary policy. A floating rate flexible in a sense that two countries agree to abide by the international market forces determine the rate through demand and supply rule. In this, the rates would undoubtedly fluctuate with a country's exports and imports transaction.
The world has adopted to this floating rate because it has proved to be more economically viable in spite of the fact that floating currency exchange rates are more fluctuating than the fixed ones. But, the biggest disadvantage of the fixed rates are they are decided by the government and therefore they tend to take into consideration political situation of the country rather than economic conditions of the country. For example, some countries peg their exchange rates artificially low with respect to a major trading partner to make their exports to that partner artificially cheap. Hence, currency exchange rates depend upon various factors and those factors contribute a great in determining foreign exchange rate.
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