Currency and exchange rates

Every country issues its own money — its currency — and uses it within its borders. When people, businesses, or governments need to trade across borders, they must convert one currency into another. The rate of that conversion is called the exchange rate, and it changes constantly throughout each business day.

Major World Currencies

• US dollar (USD) — used in the United States and accepted in many countries as a "hard" reserve currency.
• Euro (EUR) — used by the Eurozone, 20 of the 27 European Union member states share it.
• Japanese yen (JPY) — used in Japan; a major trading currency in Asia.
• British pound sterling (GBP) — used in the United Kingdom; one of the oldest currencies still in active use.
• Chinese yuan / renminbi (CNY) — used in China; its global role has been growing as China's economy has grown.

Exchange Rate Basics

An exchange rate tells you how much one currency is worth in another. If the rate is 1 USD = 0.85 EUR, then one US dollar will buy you 0.85 euros. Equivalently, one euro will cost you about 1.18 USD (the inverse). Banks, currency-exchange shops, and traders use these rates millions of times a day. Most major exchange rates are floating — they move with supply and demand for each currency.

Converting Between Currencies

To convert: multiply the amount by the exchange rate. Example — if 1 USD = 0.85 EUR, then 100 USD = 100 × 0.85 = 85 EUR. Going the other way — if 1 EUR ≈ 1.18 USD, then 100 EUR ≈ 118 USD. Travelers, importers, and exporters all do this calculation routinely.

Why Rates Change

• Supply and demand — when more people want to buy a currency, its value rises.
• Interest rates — higher interest rates can attract foreign investors, pushing the currency up.
• Inflation — high inflation tends to weaken a currency over time.
• Trade balance — a country exporting more than it imports often sees stronger demand for its currency.
• Government action — sometimes a country deliberately weakens (devalues) its currency to make exports cheaper.

Hard Currency and Devaluation

A hard currency is one that is widely accepted, stable, and trusted — the US dollar, euro, and yen are typical examples. Devaluation is when a country's currency loses value against others. A devalued currency makes the country's exports cheaper abroad but makes imports more expensive at home.