The trading of currency, also known as the foreign exchange market, is the largest market in the world. It is estimated that two to three trillion US dollars are exchanged every day. Most of the exchanges are conducted by banks and multinational corporations.
Currency trading can be very profitable but involves a high level of risk. Currencies such as the Swiss franc are considered very stable and thus do not involve much risk. Other currencies, however, fluctuate much more.
The value of a currency is determined by the market. The higher the level of confidence that traders have in a particular currency, the higher the currency will be. This is related to the economic theory of supply and demand.
However, governments can greatly influence the value of a currency. This can be accomplished in several ways. One is corporate tax policy. A favourable policy encourages investments and boosts the value of a currency. Another critical factor is the amount of currency a country prints. If supply is low, the demand for a currency tends to increase. If supply is too high, the value of the currency decreases. The trade balance of a country and financial situation are also very important. A country with a positive trade balance and good finances has a currency that investors value.
Despite government policy, the main factor which determines the value of a currency is the market. In other words, it is currency trading. The most valuable currencies are in high demand. Countries with stable governments, good conditions for investment, natural resources, a high level of technology, good infrastructure and education, and transparent business practices are countries with strong currencies.
The value of a currency is primarily determined by the foreign exchange market. Currency trading represents the largest market in the world. Trillions of dollars are exchanged every single day. The market is so profitable that banks and multinational corporations make great profits. Individuals can also profit but need considerable knowledge to be successful.