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What is a currency?

Intro to currency

A currency is a form of money, usually issued by the public authorities in a particular jurisdiction. It performs three functions – it is a unit of account, a store of value and a medium of exchange. It is able to do so because firms and households accept it in settlement of debts.

Where have you heard about currency?

Everywhere! Price rises are taken as a sign that the currency is losing its value, while movements of the currency on foreign exchanges are scrutinised by tourists, exporting businesses and politicians. Changes to coin and banknote design are headline news, as are private currencies such as Bitcoin.

What you need to know about currency.

A currency is a monetary denomination, such as the dollar, euro or pound, that is accepted in payment within a given area or among a specific group of people. With the decline of bullion coinage, currency has no real worth in itself and derives value instead from its general acceptability. Usually, currency is supplied by a public body such as a central bank although private currencies have flourished, whether high-tech Bitcoin or locally-issued money.

Investors trade currencies on the Forex or FX market - the largest and most liquid market in the world. Trades are done in currency pairs in which a certain quantity of one currency is bought by selling a certain quantity of another currency. The first currency in the pair is the base currency and the second is the quote currency. The quote currency is the amount that it will cost you to buy one unit of base currency.

Most currencies trade against each other on currency markets at rates of exchange that fluctuate in line with changes in demand for the currency in question.

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