Go back to: General discussion
1) Why do countries have currencies with different values to each other?
Because of their monetary policy, this depends of the exchange rate regime, the way a country manages its currency in respect to foreign currencies and the foreign exchange market.
2) How does a nation gain and / or lose when the value of their currency fluctuates?
A nation gain or lose by the exchange of currencies. Must countries use a system of managed floating exchange rates, supply and demand factor set the exchange rates most of the time, as international banks, investors, tourists, consumers, and multinational companies buy and sell currencies and goods.
3) How can government actions (central banks) affect the value of their currency and why do they do so?
In concordance to answer 2) the demand for a particular currency is determined by many factors including a country´s inflation, interest rates, political and economic outlook, monetary policies and speculation. Governments and specifically central banks (who regularly are independents) typically only intervene to prevent massive fluctuations in exchange rates and control some of the factors previously mentioned.
4) How does a currency trader make and lose money?
A trader makes or loses money in the foreign exchange market (Forex) where just as with the stock prices; the exchange rate between currencies is constantly changing and reacting to market conditions. Forex traders are always trying to anticipate the movement of exchange rates and capitalize upon these predictions. Forex investors can profit whenever they correctly predict moves in the exchange rates; the basic premise of any Forex investment is to purchase one currency while simultaneously selling another, historical data (technical analysis), economic and political data are used as strategy in the trade.
References
a) http://en.wikipedia.org/wiki/Currency#Control_and_production
b) http://html.rincondelvago.com/mercado-monetario.html (in Spanish)
c) http://www.economist.com/research/economics/
d) http://www.investorguide.com/igu-article-1149-investing-basics-currency-speculation.html
Discussing the Questions
1) Why do countries have currencies with different values to each other?
Because of their monetary policy, this depends of the exchange rate regime, the way a country manages its currency in respect to foreign currencies and the foreign exchange market.
2) How does a nation gain and / or lose when the value of their currency fluctuates?
A nation gain or lose by the exchange of currencies. Must countries use a system of managed floating exchange rates, supply and demand factor set the exchange rates most of the time, as international banks, investors, tourists, consumers, and multinational companies buy and sell currencies and goods.
3) How can government actions (central banks) affect the value of their currency and why do they do so?
In concordance to answer 2) the demand for a particular currency is determined by many factors including a country´s inflation, interest rates, political and economic outlook, monetary policies and speculation. Governments and specifically central banks (who regularly are independents) typically only intervene to prevent massive fluctuations in exchange rates and control some of the factors previously mentioned.
4) How does a currency trader make and lose money?
A trader makes or loses money in the foreign exchange market (Forex) where just as with the stock prices; the exchange rate between currencies is constantly changing and reacting to market conditions. Forex traders are always trying to anticipate the movement of exchange rates and capitalize upon these predictions. Forex investors can profit whenever they correctly predict moves in the exchange rates; the basic premise of any Forex investment is to purchase one currency while simultaneously selling another, historical data (technical analysis), economic and political data are used as strategy in the trade.
References
a) http://en.wikipedia.org/wiki/Currency#Control_and_production
b) http://html.rincondelvago.com/mercado-monetario.html (in Spanish)
c) http://www.economist.com/research/economics/
d) http://www.investorguide.com/igu-article-1149-investing-basics-currency-speculation.html