Who decides the value of a dollar relative to a euro? Why do exchange rates change frequently?
In: Economics
Alright, imagine you have two kinds of toys: one toy is called “Dollar” and the other toy is called “Euro.” Sometimes, one toy becomes more popular and wanted by more people, like when everyone wants the Euro toy. When that happens, the Euro becomes more valuable compared to the Dollar. But if more people want the Dollar toy, the Dollar becomes more valuable.
The people who decide how valuable each toy is are called “traders,” and they trade these toys all around the world. The value changes because the traders are always buying and selling them. The value also changes if countries have a lot of these toys or if their economy (which is how much money and things they make) gets stronger or weaker. That’s why one day you might need more Dollars to get one Euro, and the next day, you might need fewer Dollars.
It’s like a game of trading toys, and the rules are always changing!
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