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Why Do People Want to Buy Currencies?

Why Do People Want to Buy Currencies?

Postby burhdon9 » Tue Apr 30, 2013 9:12 pm

Currencies are made out of thin air by various central banks. So why do people want to buy foreign currencies, why is the FOREX such a huge market, and what is the point of buying foreign currencies?
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Why Do People Want to Buy Currencies?

Postby engelbert » Wed May 01, 2013 12:33 am

To buy goods from foreign countries, or to invest into businesses located there.

Also to profit from exchange rate fluctuation as Steve above has said.

Money is made out of thin air, but it is given value by beliefs of millions of people.
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Why Do People Want to Buy Currencies?

Postby chaunce8 » Wed May 01, 2013 9:50 am

When you engage in trade between two countries, you pay for the goods you purchase from the other country in their currency. Because the value of one currency relative to another fluctuates over time, a buyer may wish to lock in the real price of a purchase by obtaining the currency at the time the agreement is made, rather than waiting until the date of the payment. This provides a hedge against losing money due to an increase in the value of the other currency, or a decline in the value of your own currency.

Because trade is not balanced between two partners in terms of the value of the goods bought vs the goods sold, there needs to be a market for obtaining the currency of whichever country happens to be selling more than they are buying in a given period. This is the primary purpose of the currency exchange market. It provides an essential service for international trade.
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Why Do People Want to Buy Currencies?

Postby giovani » Wed May 01, 2013 10:00 am

If one euro is worth $1.25 american and I buy one (with $) and it goes up to $1.26, then I make $0.01. Now multiply that by 1,000,000 and repeat.

That's overly simplified of course but, you get the idea. Fiat currency changes value against other fiat currency constantly. People bet on it and make $. Or buy one because it is more stable than what they have.
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