Take the US dollar for example. I was reading an article which said the dollar reached new highs recently, but there was a negative connotation to the piece. Doesn’t something “rising” generally mean it’s “stronger”? I usually think in terms of assets like stocks
In: 76
Pretend you have two countries: Spacely and Cogswell. Spacely makes sprockets, Cogswell makes cogs. Each one prints their own currency. If you want to buy sprockets you need to buy them with Spacely space-bucks. If you want to buy cogs, you need to buy them with Cogswell coins.
So, as demand for sprockets goes up, there are more people looking to change their Cogswell coins into Spacely space-bucks. Just like with any other product, as the demand goes up, so will the price, assuming the supply is constant.
So, applying this to the real world, a strong currency is the currency of a country which makes and sells goods that people want to buy, and a weak currency is one which makes and sells goods which fewer people want. It’s that simple.
Latest Answers