Worth understanding are the different loan calculators but this time we will focus on the currency calculator. It’s of paramount importance for people who like to borrow from any financial firms to familiarize themselves with financial terms; this will help to enhance their knowledge of the financial world that we live in.
Borrowing money comes with certain conditions which are put in writing by the lender with the thrust of trying to come to an agreement which is meant to be signed by the borrower but this should only be done if the borrower understands the terms and conditions of that loan agreement.
What are Currency Exchange Rates?
Forty years ago, most of the world’s currencies stopped having any backing to support their value but at some point many currencies were backed by silver, gold, or other means – the governments that issued paper currency did so while maintaining some form of support for it.
Things have changed now; the value of a U.S. dollar, a ruble, a British pound, Swedish kronor, a Brazilian real, and that of the vast majority (but not all) currencies, is determined by trading on the international foreign exchange market.
The international foreign exchange (forex) market is a continuous process that is conducted from Sunday night to Friday night – it’s an unending process. The international market trades volumes of hundreds of trillions of dollars’ worth of in value of most of the world’s currencies (a significant exception is the Chinese RMB, however). As traders exchange dollars for rubles or Swiss francs or whatever currency they choose, they determine the value of these currencies.
As such the exchange rate means that the rate is obtained from exchanging one currency to another. It is for that reason that the rate is expressed in terms of currency pairs, and is presented like this:
EUR/USD (euro/U.S. Dollar, or how many U.S. dollars you get for a single euro).
These rates change all the time, sometimes from one second to another, because the forex traders work in a global electronic market that functions at high speed.