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When some countries import goods from others, in many cases they have to make payments in a currency other than their own, that is, in foreign currency. For this reason there is a specialized market for these exchanges: the currency market, exchange rate market or Foreign Exchange (Forex).

The forex market is today the largest financial market in the world, with a daily trading volume of around 5 trillion dollars. It begins to operate on Sunday afternoons with the opening of the market in Australia and ends on Fridays with the closing in New York. The market does not close for 24 hours a day.

Appreciation and depreciation: the two sides of the foreign exchange market

The market exchange rate of one currency with respect to another varies according to the law of supply and demand. Two things can happen: that one currency appreciates with respect to another or that it depreciates.

When a currency is appreciated, it goes up in price. This happens either because their demand is very high or because there is little quantity compared to other currencies. On the contrary, currencies depreciate when they are abundant because there is an excess supply of them, or because there is a large amount in relation to the scarce supply of other currencies.

A strong currency is one that tends to appreciate, unlike a weak currency, whose exchange rate will be more unstable and will tend to lose value. Obviously, strong currencies have a lot of international demand. Today, the dollar and the euro are the two strongest currencies in the market.

However, the appreciation or depreciation of a currency is not necessarily positive or negative situations for a country. For example, when there is a crisis, devaluation makes exports cheaper, which increases their demand worldwide? It is what is called competitive devaluation.

For example, if the euro depreciates against the dollar, it will be easier to export, but importing becomes more expensive as the other currency has appreciated. From financial point of view capitals flee in euros because investors convert them into dollars. This translates into losses for foreigners with euros and gains for Europeans with dollars.

What moneys are dealt in Forex?

In the forex market there is a wide variety of currencies. Therefore, for their better identification, they are grouped as follows:

Emerging currencies: such as the Hungarian Forint (HUF), Polish zloty, the Czech koruna (CZK) or Mexican peso (MXN).

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