"demand and supply".
that's the basic of today's economic system.
meaning when demand for a product is high, the price rise.
and when the demand for a product is low, the price will fall.
and this concept also applies to the currency exchange.
when more people wants the currency of country A, the currency price rises.
and when the demand for country A's currency is low, the currency price falls.
How does a country's demand of currency rise?
this happens when the country produce something good that other country wants.
so, when people want to buy the product, they must buy the currency (to pay for the product of course).
so, when more people demand for a country's product, the demand for the currency will rise.
and when the demand for the currency rise, the currency price rise.
so, before this, the exchange rate is A$1.00=B$1.00 (A: your country, B: the producer country)
now, it will become A$1.00=B$0.50 (see how you can need more A$ money to buy B$1.00)
so what? why does this matter?
OK, now the amount you need to pay for the same product is higher compared to before, right?
the next basic thing you need to know bout the economic system is:
"when the price is high, demand for it will fall"
that's because a normal human usually opt for something cheaper.
now back to the currency issue.
when the currency price rise, people will start to demand less for it.
right? correct me if I'm wrong.
when people demand less for it, the currency price will drop again.
(it's like, when no one wants your product, you make a sale/ price deduction,
same goes to currency)
and the circle goes round and round again.
it's like there's a barrier that no one sees, but it's there and making a country can't go further up from the level they are at.
weird?
this is all the effect of the "demand and supply" concept and the currency exchanging system. when you use a piece of paper and print value on it, the value on the paper is not the same between countries eventhough the material value they tie the money with is the same (gold).
that's why I've been thinking....
why don't people use gold as currency for all country.
instead of printed paper with value printed on it.
can't believe i gave a lecture on currency today.
well, hope you all understood. any unclear doubts, just hit me back.
I'd be glad to answer.
