These transactions mainly take place in foreign exchange markets, marketplaces for trading currencies. Over this time period, the shekel got stronger or more valuable in other words, the currency appreciated.Īppreciation = getting stronger = worth more = higher valueĭepreciation = getting weaker = worth less = lower value Changes in the value of a currency are influenced by supply and demand.Ĭurrencies are bought and sold, just like other goods are. cents in 2003, but its value has grown over time, trading in for thirty cents in March 2021, a nearly 60 percent increase. On the flip side, the Israeli new shekel was worth just nineteen U.S.
Sometimes a currency that depreciates is described as getting weaker because you can buy less foreign currency with it. Over time, the value of the rupee has depreciated, or gone down, making it worth less. And forty years ago, you only needed eight rupees to get one dollar. Ten years ago, a dollar was worth fifty rupees. dollar is the equivalent of about seventy-two Indian rupees. If a currency’s value drops, for example, the value of the investment would drop as well.īut most exchange rates aren’t fixed-they’re “floating,” meaning their values constantly change depending on various economic factors. Countries usually peg their currencies to maintain stability for investors, who don’t want to worry about fluctuations in the currency’s value. Such currencies are called fixed or pegged. For example, Belize’s central bank decided its currency would be worth one-half of a U.S. dollar or the euro, and “peg” their own currency’s exchange rate to this currency. So who decides how much a currency is worth? For a handful of countries, it’s pretty straightforward: these countries pick a commonly used currency, usually the U.S. dollars, it actually costs roughly the same. Does that mean a chocolate bar is 14,000 times as expensive in Indonesia as it is in the United States? Well, no-if you convert rupiah into U.S. Different currencies are worth different amounts.Ī Snickers bar might cost you a dollar in the United States, but in Indonesia it could cost you over 14,000 rupiah.
To understand what those decisions are, it’s important to understand why currencies have different values and how these values shift over time.
Have you ever wondered why every country doesn’t just use the same currency? Wouldn’t life be easier if we didn’t have to waste time exchanging bills or calculating conversion in our heads when we travel? Well, the majority of countries have their own currency for a reason, and it’s a simple one: most countries have unique economic situations and want to make monetary decisions based on their specific interests and needs.
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