Currency is the money people use to make trading easier. In the United States, we use U.S. dollars to buy goods and services. Believe it or not, the U.S. dollar is not used in all countries. In other countries, different currencies are used. Most of the time, when you are in another country, you cannot buy goods and services with the currency from your own country. You have to exchange your U.S. dollars for the country’s currency. This is called currency exchange. The chart below gives examples of some of the currencies used by different countries, and the value of those currencies compared to the U.S. dollar (2009).
Country Name of Currency Exchange Rate
(to 1 US dollar)
Canada
Mexico
Russia
France dollar peso ruble euro
1 Canadian dollar
13 pesos
31 rubles
.78 euros
Australia
United Kingdom dollar pound
.96 Australian dollars
.62 pounds
Foreign exchange markets buy and sell international currencies. An exchange rate is the price of one nation’s currency compared to another nation’s currency. Like other prices, exchange rates are determined by supply and demand. Foreign exchange markets help individuals and companies by making it easier to trade all around the world. For instance, a Germany company that builds cars needs to pay its workers in euros. A buyer in Mexico has pesos (the Mexican currency) to spend. In order for the sale to happen the buyer in Mexico must exchange his pesos for euros. Banks will exchange money for a small fee.
Questions to Consider:
1. What is the money people use in a country called?
2. What is currency exchange?
3. What is exchange rate?
4. What is one reason for people to exchange currency?
5. It takes .78 euros to equal 1 U.S. dollar. What inference can you make about the economy of the
European Union compared to the United States’ economy?
6. If a group of U.S. citizens wanted to pay for a tour in Berlin, Germany, what must the citizens do to their U.S. dollars?