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 $1 while the same burger in my country is equal to 10 X then why does an exchange rate matter if we can still get the equivalent items just in our own currencies?
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The exchange rate matters because it’s just that — an *exchange rate.*
Let’s say I’m from the US, and I’m visiting your country that uses your X currency. If I want to buy stuff, I’ll need X, not US Dollars. I need a way to convert my USD to X, and the exchange rate is what determines how much X I get for my USD.
It’s the same thing going the other way — when I convert X back into USD, the exchange rate determines how much I get.
There’s a *ton* of reasons why exchange rates are important, and maybe someone else can explain in more detail, but I’ll stick with a basic example.
Let’s say I convert 1$ to X and get 10X. The next week, when I want to change it back, the exchange rate has changed and now 1$ is worth 20X. The dollar has gotten “stronger” and the X has gotten “weaker.” When I convert my money back, I only get $0.5. Despite me doing nothing but exchanging my money between currencies, I’ve lost money.
It can go the other way, too — if the rate changes to 1$ = 5X, then I end up with $2. I’ve gained money.
Currency is being exchanged in large quantities all the time and all over the world by countries and corporations, so it’s very important for them to keep on top of exchange rates and be strategic about which currencies they’re holding.
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