Currency

Financial Dictionary -> Investing -> Currency

Currency is the broad term used to define the form of money used in circulation in any given country. In the United States the currency is the US Dollar and in the UK it's British Pounds and Sterling. Almost every country has their own currency, although most members of the European Union now use the Euro, allowing free trade. A typical currency contains physical notes and coins, as well as electronic representations of the money in the form of checks, credit cards etc.

The general structure of a country's currency starts at the central bank, which controls the production of money and the money supply itself. Upon trading goods and currency between two different regions the currency has an exchange rate, which can be described as the value of a currency measured in how much foreign currency it can buy. In other words currency A's worth in relation to currency B.

Most exchange rates fluctuate. An example of this is how the UK pound has become weaker against the US dollar in 2008. Due to the fluctuations in exchange rates, some investors aim to make a profit by actually trading in the money market. If the investor can predict that one currency will become weaker against another, they will buy up the soon to be stronger currency and then convert it back making a profit. This is called FOREX trading.