To understand currency exchange, you must first understand history. For hundreds of years, various world currencies have been supported by gold. The meaning, paper currency throughout history has been represented by the actual amount of gold held in a safe location by the government publishing it.
The United States in the 1930s set the value of the US dollar at an unchanged level. Every $ 35 dollar represents one ounce of gold. This makes it easier for other currencies that will be appreciated against the dollar because they can base it on their value in gold. So, the currency is worth three times more than USD (US dollar) is a three-fold price of the US dollar. It does not last long, because in the end the real world economy moves faster than this system can follow.
Currency exchange – What is that?
Today, the US dollar is still above most financial markets, but is no longer represented by the actual amount of gold or other valuable substances. The US dollar is now controlled by the market. “The two main systems to determine the exchange rate are floating currency systems and pegged currency systems.
In Exchange Floating, the market determines the tariff. Which basically means, the currency is worth what the market is willing to be paid. This is a simple inventory and demand, driven by things like, import and export ratios, inflation, and several other economic related factors. The world’s main nations use this system, because it has a much more stable economic market. The floating exchange rate is more widely used because they are considered the most efficient, because they depend on the market to improve rates when dealing with inflation and other economic changes.
The Pegged system is a fixed interest rate system managed by the government. It does not fluctuate because it is directly pegged in several other countries. (Usually USD) economy with risks becomes unstable, or immature economics usually uses this type of system. Developing countries use this system in an effort to protect themselves against extraordinary inflation. Peged systems can easily reply when black markets may tend to appear to exchange currencies at their market value, ignore the tariff set by the government.