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Foreign Exchange Rates Explained

The exchange rate between two different currencies indicates how much one currency is worth compared to the other. A transaction from one currency to another is called foreign exchange or forex. That's the basics, however that is also just the beginning of the world of forex. The foreign exchange market is the largest, most dynamic market in the world. According to estimates, almost 2 trillion dollars worth of currency is traded each day. Dollars are exchanged into all currencies by banks and forex brokers, popular currencies are us dollars, british pounds, euros and japanese yen.

Foreign exchange is driven mainly by supply and demand and the exchange rate between currencies is influenced substantially by economic data and conditions. Interest rates changes and unemployment data are just two of many factors which could change traders views on the current worth of a currency. It is no wonder that predicting exchange rates is a complex business, when any countries stance on current economic conditions can change worldwide views on the direction. This is why the forex market plays such a critical role in determining exchange rates.

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