How exchange rates work
The price of one currency in another: why we need it, what moves it, and who it helps or hurts.
Transcript
An exchange rate is the price of one currency in another. If one dollar buys twenty five thousand dong, that is the rate.
We need it because each country's money works mostly at home. To buy from abroad, someone must swap currencies first.
Most rates are set by supply and demand in the foreign exchange market. When more people want a currency, its price goes up.
Demand comes from trade, tourism, investment, and above all, the interest rate a country pays.
When the dollar gets stronger, imports from America cost more in dong, but Vietnamese exports look cheaper to American buyers.
Some governments manage the rate. A central bank can buy or sell its reserves to keep the currency inside a target band.
An exchange rate is just a price.
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