What Is Currencies?

A particular currency in the most general sense is currency in circulation either as a legal tender or circulating currency, especially circulating coins and banknotes. It is created by governments of countries and usually accepted throughout the world as legal tender, although other types of currencies are also sometimes accepted. Currencies are generally accepted globally as a standard unit of account for trade, exchange and negotiation. One example of a government issued currency is the US dollar.

In terms of commodity and foreign exchange rates, the dollar is the currency most often traded on a global scale. It is usually the most easily marketable currency, which means that people want to deal with it when trading. Other common types of currencies are the British pound, the Japanese yen, the Euro, the Swiss franc, the Australian dollar and the Canadian dollar. Although all of these currencies are common throughout the world, each of them is traded in unique terms. Because people want to transact in the dollars that they are issued with, exchange rates between the different currencies are important to traders.

Currencies are chosen for their exchange rate and not because of their intrinsic value. The exchange rate of a given currency is determined by forces beyond its intrinsic value. If there are too many buyers and sellers of a given currency, the exchange rate will be unbalanced. An imbalance in the foreign exchange rate may be due to the US dollar being stronger than another currency. If there are more sellers than buyers of a given currency, this may also cause an unbalanced exchange rate.