What is a Currency?

Welcome to the Investors Trading Academy talking
glossary of financial terms and events. Our word of the day is “Currency”
Currency can best be defined as tokens used as money in a country. In addition to the
metal coins and paper bank notes, modern currency also includes checks drawn on bank accounts,
money orders, travelers checks, and will soon include electronic money or digital cash.
Typically currency refers to money that is legally designated as such by the governing
body, but in some cultures currency can refer to any object that has a perceived value and
can be exchanged for other objects. Generally speaking, each country has its own
currency. For example, Switzerland’s official currency is the Swiss franc, and Japan’s official
currency is the yen. An exception would be the euro, which is used as the currency for
several European countries. Investors often trade currency on the foreign
exchange market, which is one of the most heavily traded markets in the world.
Currency, in and of itself, is nothing. It can be a shell, a metal coin, or a piece of
paper with a historic image on it, but the value that people place on it has nothing
to do with the physical value of the money. Money derives its value by being a medium
of exchange, a unit of measurement and a storehouse for wealth. Money allows people to trade goods
and a service indirectly, understands the price of goods and gives us a way to save
for larger purchases in the future. Money is valuable merely because everyone knows
everyone else will accept it as a form of payment.

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