What are Currencies?
- Currencies are...well, just that: cash, for any given country
- FX refers to the exchange rate between two currencies, like EUR vs USD
- The currency market (aka foreign exchange) is known as the largest and most liquid financial market in the world.
- Foreign exchange markets run 24 hours a day
What is currency and FX?
A currency is the official means of payment in a country (USD in the United States) and the currency market entails the exchange of global currencies. Each currency has an exchange rate: its value relative to another currency. For example: the current exchange rate between the Indian rupee and the US dollar is 0.014. That means 1 Indian Rupee is the equivalent of 0.014 USD. The USD is the most commonly used benchmark currency, so the majority of currencies around the world are quoted against the US Dollar.
FX refers to the foreign exchange market, a global over-the-counter market for trading global currencies. If you want to take a trip to India from the US, you must exchange USD to INR through a currency house which will buy your USD and give you INR, based on the currency exchange rate. Now if you scale this into the millions of other transactions occurring at the same time, you’ll understand why the daily volume for forex is in the TRILLIONS - facilitating global trade and business.
An investor can gain a profit through the forex trade by making the difference between currency interest rates in different economies. An investor can buy the currency with the higher interest rate and short the currency with the lower interest rate.