Everyone, at least once in their life, has traveled to Holland or Argentina, and they exchanged their country’s currency in Euros or Argentine pesos. Or, perhaps you’ve traveled from England to Japan and exchanged your English pounds for Yens. If so, you have experienced Exchange Rates in action. But, does everyone understand how they work? You have probably heard it at the news that the American dollar fell against the Yen but do you understand what that actually implies? Or how the Rate Exchange can affect the value of currencies in countries around the world?


National currencies are extremely important to the way modern economies operate. They allow us to value an item across the borders of a country. We definitely need Exchange Rates because one country’s currency is not always accepted in a different country. You can’t walk into a store in Switzerland and buy a loaf of bread with American dollars. To better understand the term, a Rate Exchange is the price of one country’s currency expressed in another country’s currency.


There are two main systems used to determine a currency’s Rate Exchange, and those are floating currency and pegged currency. The floating currency is determined by the market, meaning that a currency is worth whatever buyers are willing to pay. It is basically determined by supply and demand, which is, at its turn, driven by foreign investment, inflation, and import/export ratios. This type of currency Rate Exchange system isn’t perfect, even if it is considered to be the system used by countries with mature, stable economic markets. If a country's economy suffers from instability, a floating system will discourage investment. Investors could fall victim to wild swings in the Exchange Rates, as well as disastrous inflation.


A pegged system is the one in which the Exchange Rates are set and artificially maintained by the government. In this case the rate will be pegged to some other country’s currency. Countries which have immature, potentially unstable economies usually use a pegged system, but at the same time developing nations can use this system to prevent out-of control-inflation.


In reality, few Rate Exchange systems are 100% floating systems or 100% pegged systems. Countries using floating Exchange Rates make changes to their national economic policy that can affect Exchange Rates from other countries, directly or indirectly.


Back in 2002 a tool was needed to enhance political solidarity and to unify the economies of different countries. Thus the Euro became the single currency of 12 member states of the European Union. This was the largest currency event in the history of the world! Some advantages of this economical phenomenon are the elimination of Rate Exchange fluctuations, transaction costs – no currency exchanges are necessary within the Euroland countries – increased trade across borders.


The next time you cross a border into a different country keep in mind that economic forces across the world helped determine the Rate Exchange you are going to use. In fact, you are one of those economic forces – you are helping to set the Rate Exchange too.


If you’re traveling to a different country you need to check the currency’s Rate Exchange http://currencyconvert.co and calculate how much you’re going to win or lose. Understand Exchange Rates http://currencyconvert.co quickly with the help of a currency converter.