If you have ever traveled to a foreign country, exchanging the currency of your home country into the currency in use in the country you are visiting is probably something you have already experienced. Typically, once you arrive, you go to a bank and exchange your money for currency that is accepted in the country you are visiting. Understanding money exchange rates can make this process much simpler and will certainly help to ensure you get the fairest exchange for your money. There are two basic systems used to determine exchange rates, these include the pegged and floating currency systems.
Market conditions, or supply and demand, are what influence the floating exchange rate. Typically, countries with fairly stable economies, such as the US, Canada and many European countries will use a floating system. Of course, countries that are not quite as stable would find a floating system disastrous and tend to use a pegged or fixed exchange rate where money exchange rates are tied to a more stable currency, such as the US dollar.
While these are just general methods of determining currency value and exchange rates, even governments with a stable economy will make changes to their economic policies that can affect exchange rates. In fact, economic forces, such as individuals exchanging money can also influence market conditions and money exchange rates.