Exchange rates and the foreign exchange market

In short: An exchange rate states how much of one currency you get for another. It arises on the foreign exchange market from supply and demand (angebot-und-nachfrage).

In more detail: Example: 1 euro = 1.10 US dollars. If the euro rises against the dollar, this is called appreciation.

In detail

• Influences: Interest rates, inflation, trade balance, political stability, expectations.
• Appreciation: Imports become cheaper, exports more expensive.
• Depreciation: Exports become cheaper, imports (and holidays abroad) more expensive.
• Fixed and floating rates: Some countries peg their currency to another.
• Euro area: Within the euro there is no exchange-rate risk.
• Travel: Compare card and exchange fees; cash abroad is often unfavourable.
• Speculation: Currency trading is the largest financial market in the world (zentralbank-und-leitzins).