International currency allows organizations to conduct business transactions globally. Every country has at least one functional currency, which is referred to as its domestic currency. When making a transaction with a foreign currency, the currency must be translated into the equivalent home currency value. Because the actual values of currencies change relative to one another, sometimes rapidly, special markets have been established to facilitate and control currency trading. Cryptocurrencies, digital forms of currency that can also be used to transact physical assets, have been gaining traction as an alternative to traditional currencies.
At A Glance
- Rates of exchange and purchasing power parity strengthen currency exchanges over international borders.
- The rates of exchange are driven by various factors, including inflation, purchasing power parity, currency appreciation, and political and economic risk.
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Appreciation and depreciation of a foreign currency relative to a home currency can have an effect on the import and export of goods and inflation.
- International currencies are exchanged on Forex, or foreign exchange currency markets, and are backed by foreign exchange reserves.
- The relative value of money is set by the largest currency exchange markets.
- Currency valuation can be calculated using direct and indirect quotation methods.
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Digital currency, including electronic, virtual, and cryptocurrencies, is a relatively new form of currency being used in global economies.
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Cryptocurrency may be easy to use and offers considerable privacy, but it faces many challenges, from its newness and lack of centralization to being accepted as a modern currency.
- Using digital currency comes with its own risks, such as nonrecognition, significant volatility, and compliance risk.
