What are currencies used for?

The definition of currency refers to all types of currency that come from a foreign nation, this means that such a concept is necessary and useful in all countries. Currencies are an important part of world trade, this because they are a clear representation of the economy of the nation from which they come, that is why they serve much more than to acquire goods and services in foreign countries.

Function of currencies

Currencies are a necessary instrument for trade between nations, which is why they are essential. In addition, it should be mentioned that the usefulness of these has increased over time, as new ways have been discovered to take advantage of their existence in the market. Among the benefits that can be obtained with currencies, the following should be mentioned:

They facilitate the acquisition of services abroad

The exchange of the own currency for foreign currency is a necessary process for all the people who have traveled to a foreign nation, since this way it is possible to acquire the goods and services offered by the destination to which they have arrived. However, it is necessary to bear in mind that the exchange of currency for foreign currency has been replaced in recent years by other means, the most common being the credit card; since this instrument allows you to make purchases abroad, without the need to make any type of monetary exchange.

They are an excellent means of investment

All existing currencies and their respective values ​​are registered in the world money market, a space in which it is possible to negotiate with such financial assets. Therefore, they are considered an excellent means of investment, in fact, due to this, markets such as Forex have been created, in which it is possible to invest in currencies of any type and profit from it.

They allow to know the economic stability of a country

Over time, it has been discovered that currencies are an excellent means of knowing the economic state in which the currency of a nation is located, this is because it is possible to make comparisons between the value of currencies (taking as reference an object, whose value is accepted by all nations) and thus classify them by that value.

Currency types

Taking into account that currencies are extremely complex economic instruments, it is necessary to classify each of these, according to certain qualities and capacities of the same. Among the most popular types of currencies are the following:

• Strong: This type of currency is extremely relevant to the market, this is because strong currencies have great stability around their value (due to the economic situation of their corresponding country), which facilitates investments to long-term or savings in such currencies, as they are unlikely to be vulnerable to devaluation. A clear example of hard currencies is the US dollar.

• Exotic: They are considered exotic because they are rare in the international market, that is, they come from nations with low development. An example of exotic currencies is the Brazilian real.

• Bilateral: This type of currency groups all currency that is used in the collection and payment of the agreements, treaties and / or agreements that are made between two or more nations together.

• Convertible: Also known as a flexible or floating currency, it is a type of currency that can be exchanged for any other, as there is no type of restriction around it. For their part, the yen and the euro are part of this type of currency.
• Non-convertible:  Taking into account the previous concept, it is possible to summarize that non-convertible currencies are those that have a large number of limitations around exchange control, which may be due to political and economic reasons. In addition, it should be mentioned that these currencies are not accepted in the international market either.

Relevant aspects of currencies

There are a large number of factors that should be known about currencies, as this ensures good management of them. Among the relevant aspects related to currencies, it is necessary to mention the following:

What are currencies?

Currency is a concept that is assigned to each currency that originates in a foreign country, this means that there are more than 180 circulating currencies in the international market, which promote business, treaties and investments between nations.

Examples of currencies

As already mentioned, there is a large amount of circulating currencies, which are classified according to their qualities and capabilities. With this in mind, the most common examples of currencies on the market are:

• USD:  Also known as the US dollar, it is the most globalized currency, as it has been used as a reference for countless treaties and negotiations between countries. It belongs to the group of hard currencies, as it has a low inflation rate.

• EUR: Officially named as the euro, it is the currency that represents the European Union and all the countries that make it up, which is why it is also an extremely strong currency, as it is supported by various economies.

• JPY: Also known as the yuan and Japanese yen, it is the representative currency of Japan and has an extremely stable value, as it is in the 3rd place of the best valued currencies in the market.
• CHF: Officially known as the Swiss franc, it is one of the most important currencies in currency trading, this because it has a fairly stable and high value.
• GBP:  Its official name is sterile pound, and it corresponds to the currency used by the United Kingdom region, as well as all those dependencies of the British Crown. On the other hand, it is one of the strongest currencies, since its annual inflation level has not exceeded 3%.

Buying and selling currencies

Buying and selling foreign currency may be a necessary procedure for various reasons, as it may be related to tourism, investment, and savings, among others. However, despite seeming simple, it is necessary to take into account certain aspects, in order to achieve a successful currency purchase or sale.

• Know what the exchange value is: Before buying and / or selling currencies, it is necessary to handle the real value of the currency in question, as this allows to avoid economic losses.

• Identify the possible risks:  In case of making purchases and / or sales of currencies, in order to obtain a profit margin; then it is necessary to identify the possible risks of operations in the market, as different variations could occur that generate losses.

• Seek advice with professionals:  Operations in the foreign exchange market are usually carried out through intermediaries, which are known as brokers; These are responsible for advising and guiding throughout the process, so that the individual is successful in the procedure. On the other hand, it should be noted that these brokers usually charge a commission for their fees.

Forex market

The currency market is a means that allows you to trade currencies freely, this market is known as Forex, which comes from Foreign Exchange. This market is used both by natural persons, as well as by financial institutions and banking organizations. Therefore, it is extremely important and necessary, since it allows international economic agreements to be developed in a simple way, as well as broadens the concept of investments.

Invest in the forex market

To operate in this market as an investor, it is advisable to use a series of instruments, which are designed to facilitate the selection of options and thus ensure financial success. These instruments include the following:

• Technical analysis: It is a type of analysis that uses statistics, mathematical forecasts and graphics, in order to obtain a result that allows predicting the future trend of a currency.

• Fundamental analysis:  It is a type of analysis that allows predicting the value of a currency, by using more than mathematical forecasts, since, to carry out this type of analysis, it is necessary to take into account economic, political and social movements, related to the currency in the one expected to invest.

• Brokers: Certainly, brokers (brokers) are a good option when you expect to obtain knowledge about the state of a currency, since they are in charge of studying everything about it and advising investors on the subject.

Conclusion: Is it necessary to use currencies?

Currencies are a fundamental part of each of the countries from which they come, since they allow trade within and outside their territory; which greatly benefits such nations, as well as those who inhabit them. Therefore, it is possible to summarize that the global use of currencies is extremely necessary to maintain relations between countries and their trade agreements.