Currency – what is it and how is it exchanged?

Credit: babypips

Currency is ‘a system of money in use in a particular country’. This means Rupees or US Dollars, or other forms of money that are used in different countries.

Each country has a currency that is decided upon by their government and banks. The currency has to be approved, and a certain amount of it is then printed and coined, and put into ‘circulation’. This means that there is a certain amount that is printed and released to be used by people to trade with each other.

The Central Bank in most countries decides how much money to put into circulation. In India, this organisation is called the Reserve Bank of India.

Now currency gives ‘purchasing power’. This is basically the amount of stuff you can buy with one unit of the currency. So if you can buy 10 sweets with 1 Indian Rupee, that is the purchasing power of the Indian Rupee.

Got it! So what are exchange rates? Well, it is simply the value at which one currency can be exchanged into another. For example, at today’s rate, 1 US Dollar (USD) = 70.10 Indian Rupees (INR).

So 1 USD in India will get you (70.10 x 10) sweets. That’s 701 sweets!

So who decides how many rupees are equivalent to 1 USD? Well, supply and demand, as well as what people think the strength of the country’s business and political structure are. So currency exchange rates actually change throughout the day, And when a country is in a position of stability  in terms of their business and leaders, that currency is stronger than others.

Written by: Sunaina Murthy. Sunaina is a biotechnologist, writer, greedy reader, and amateur photographer.


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