Say that my country with a currency called “X” has an exchange rate of X10/$1 so 10 X = 1 dollar but a burger in the US is equal to $1 while the same burger in my country is equal to 10 X then why does an exchange rate matter if we can still get the equivalent items just in our own currencies?
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At an ELI5 level, it’s because not every country has hamburgers so they have to buy things from elsewhere.
Don’t have natural gas in your country? Gonna have to buy from someone else. If they won’t accept your currency, then you have to exchange it.
A bit more advanced example is debt. Say BigCorp based in U.S. wants to open an office in Ireland, so they get a loan for 100M euro to build their campus. They have to pay that back in euro, so if the value of the euro changes with respect to the USD, the cost of paying back their loan changes. If they’re not collecting enough revenue in euro, they may proactively buy & hold euro or euro-related instruments to hedge against abrupt changes in exchange rate.
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