Go back to: General discussion
1) Why do countries have currencies with different values to each other?
After Nixon ended the convertibility of gold and the USD, which was the standard under the Breton Woods Agreement, different currencies became independent of each other. Since a variety of currencies were no longer bound to the USD, economic differences between nations led to fluctuations in currency value.
2) How does a nation gain and / or lose when the value of their currency fluctuates?
Currency fluctuations are extremely important to international trade. For example, China's finance ministers purposely devalue the yuan so that China's exports are extremely cheap. On the flip side, the US is hurt by this arrangement because the price of US exports is raised and a trade imbalance develops.
3) How can government actions (central banks) affect the value of their currency and why do they do so?
Central banks control the money supply, inflation, and interest rates, and therefore have a huge influence on currency value. Like I mentioned in the previous question, central banks can increase the money supply of a currency to purposely devalue it. Similarly, careful control of the money supply can be used to curb inflation and generate a valuable currency.
4) How does a currency trader make and lose money?
Currency traders speculate about the value of one currency in relation to another. A trader can either take a long or a short position on a particular currency. If the trader is correct he will make money, if not he will lose it.
Sources
http://www2.econ.iastate.edu/classes/econ355/choi/bre.htm
http://en.wikipedia.org/wiki/Foreign_exchange_market
Assignment
1) Why do countries have currencies with different values to each other?
After Nixon ended the convertibility of gold and the USD, which was the standard under the Breton Woods Agreement, different currencies became independent of each other. Since a variety of currencies were no longer bound to the USD, economic differences between nations led to fluctuations in currency value.
2) How does a nation gain and / or lose when the value of their currency fluctuates?
Currency fluctuations are extremely important to international trade. For example, China's finance ministers purposely devalue the yuan so that China's exports are extremely cheap. On the flip side, the US is hurt by this arrangement because the price of US exports is raised and a trade imbalance develops.
3) How can government actions (central banks) affect the value of their currency and why do they do so?
Central banks control the money supply, inflation, and interest rates, and therefore have a huge influence on currency value. Like I mentioned in the previous question, central banks can increase the money supply of a currency to purposely devalue it. Similarly, careful control of the money supply can be used to curb inflation and generate a valuable currency.
4) How does a currency trader make and lose money?
Currency traders speculate about the value of one currency in relation to another. A trader can either take a long or a short position on a particular currency. If the trader is correct he will make money, if not he will lose it.
Sources
http://www2.econ.iastate.edu/classes/econ355/choi/bre.htm
http://en.wikipedia.org/wiki/Foreign_exchange_market