Here is a simple explanation of currency and exchange rates that anyone can understand. It aims to introduce the world of money outside the UK.
What Is Currency?
So what is a currency anyway? Well, a currency is a type of money that a nation’s government issues. That currency is usually only accepted in only that country.
For example, the currency for the UK is the pound. Similarly, the currency of the United States is The US dollar. Canada uses the Canadian dollar and the currency of Australia is The Australian dollar.
So Does Every Country Have A Currency?
Usually, every country has its currency. Sometimes even a group of countries can have a common currency. For example, a lot of countries in Europe use the Euro as a constant currency.
An Introduction To Exchange Rates
So what happens if I go out of Britain to a different country? Do I have to start from scratch to earn money in that currency to survive?
No, that would be silly. Instead, you can exchange one currency for another one. However, if you exchange a pound for money that belongs to another country, then the value of your money will not be the same as it was in pounds.
Here is an example that will help you understand the concept of the exchange rate. Let us say that you are going to Japan to visit your friend. You will need some money to buy food and shop there. But you cannot use the British pound to purchase food, pay for hotels or shopping. So you need to transfer some money to your Japanese friend converted to Japanese yen. When you convert your cash into yen, you will see that 1 pound is equal to roughly 140 yen.
It does not mean that you have a lot of money to spend in japan because of the exchange rate. The price of things in japan is relative to its currency. iPhone 11 will cost £729. On the other hand, in Japan, the iPhone 11 will cost 40,000 yen to 70,000 yen depending on the storage capacity.
Fascinating is it not! But remember, when you exchange Japanese yen for pounds, you will get back the same amount of pounds. There are different cross border payment services that you can avail when necessary.
Who Decides The Exchange Rate?
In some countries, their government fixes the value of the currency and changes the rate when they feel it is necessary. But the currencies of most countries are traded just like stocks in a market called the forex market or foreign exchange market.
The exchange rate is decided by various economic factors like how fast the country is growing, how stable they are and the interest rate in each country.
What Currency Is Used By People From Two Different Countries Who Do Business With Each Other?
Two parties doing business would either pay in the currency of one of the two countries. Or they might be using US dollars or Euro as they are very widely accepted currencies.
SkylineFx is the best money transfer company in the UK. We give you the cheapest way to send money abroad regardless of your country of travel. Cross border payments or International money transfer has never been simpler. We provide the best exchange rates from the UK. After all, you deserve the fairest currency exchange deal when it comes to your hard-earned money.