Karl Montevirgen is a professional freelance writer who specializes in the fields of finance, cryptomarkets, content strategy, and the arts. Karl works with several organizations in the equities, futures, physical metals, and blockchain industries. He holds FINRA Series 3 and Series 34 licenses in addition to a dual MFA in critical studies/writing and music composition from the California Institute of the Arts.
Doug is a Chartered Alternative Investment Analyst who spent more than 20 years as a derivatives market maker and asset manager before “reincarnating” as a financial media professional a decade ago.
Before joining Britannica, Doug spent nearly six years managing content marketing projects for a dozen clients, including The Ticker Tape, TD Ameritrade’s market news and financial education site for retail investors. He has been a CAIA charter holder since 2006, and also held a Series 3 license during his years as a derivatives specialist.
Doug previously served as Regional Director for the Chicago region of PRMIA, the Professional Risk Managers’ International Association, and he also served as editor of Intelligent Risk, PRMIA’s quarterly member newsletter. He holds a BS from the University of Illinois at Urbana-Champaign and an MBA from Illinois Institute of Technology, Stuart School of Business.
Exchange rates are determined by supply and demand in the global currency market. Traders, businesses, investors, and central banks buy and sell currencies for reasons ranging from international trade to speculation. Interest rates, inflation, economic growth, government policy, and investor sentiment can all influence how much one currency is worth relative to another.
How large is the global foreign exchange market?
The foreign exchange (forex) market is the largest financial market in the world. According to the Bank for International Settlementsâ 2025 Triennial Central Bank Survey, average daily trading volume reached about $9.6 trillion. That far exceeds the daily volume of global stock markets and includes transactions among banks, corporations, investment firms, governments, and individual traders.
Who participates in the global currency market?
The forex market includes a wide range of participants. Central banks use currency markets to implement monetary policy and manage reserves. Commercial banks facilitate transactions for clients and trade for their own accounts. Corporations exchange currencies to conduct international business, while hedge funds, asset managers, and retail traders seek investment and trading opportunities. Together, these participants help determine exchange rates around the clock.
Currency is a fairly easy concept to understand as long as we focus on a single one. For instance, in the United States, everything is priced in dollars. When we think of âmonetary value,â the concept is probably tinged with a shade of green along with the images of some dead presidents.
Within a single currency regime, the prices of products may vary, but the price of money (dollars) appears pretty stable. After all, $1 will always equal $1.
Key Points
Exchange rates are influenced by interest rates, economic conditions, and investor sentiment.
The value of one currency compared to anotherâi.e., the âexchange rateââis always fluctuating 24/5.
The global currency market is the largest financial market in the world in terms of notional value.
But as soon as we buy or sell products abroad, the idea of currency gets a little complicated. Now weâre talking about âcross-border payments,â where the buyer and seller are in different countries. What makes this complex is that the values between two currencies donât have a fixed match. They are always changing. Although $1 may buy you âŹ0.90 (euro) today, perhaps eight months ago, that same dollar might have bought you âŹ1.04.
Not only does the relative value of the dollar and euro (what pros call a currency pair) change every second of the day, every currencyâs relation to every other currency in the world is different, too. Theyâre all tradable at different currency exchange rates, and these rates are constantly fluctuating, as most have floating exchange rates.
Foreign exchange. Currencies. Money. These are massively complex topics. But here are a few basic questions (and answers) to give you an understanding of how money flows across the globe, who the major players are, and why it all causes many people to scratch their heads in confusion.
What is currency, and is it the same as cash or money?
Before diving into exchange rates, it helps to distinguish among three closely related terms: currency, cash, and money.
Currency is a medium of exchange that two parties (typically countries) recognize and accept. It usually takes the form of digital or physical banknotes and coins.
Cash is physical money, like (paper) banknotes and (metal) coins. If itâs intangible, like money in your digital bank account, then itâs âcurrency,â but itâs not âcash.â
Money is the network of value that gives currency, cash, and other forms of monetary assets their purchasing power.
What is the global currency market?
Thereâs no single âmarketâ through which people, businesses, and governments exchange currency. Thereâs no one-stop-shop, mega-mart for money. Instead, there are multiple electronic trading networks through which these parties exchange currency.
How large is the global currency market?
According to the Bank for International Settlementsâ 2025 Triennial Central Bank Survey, around $9.6 trillion changed hands per day as of April 2025âup from $7.5 trillion three years before. The foreign exchange market is the largest market in the world, as everything traded across borders has currency values attached.
In other words, the foreign exchange market isnât just banks and traders buying and selling money. Before any raw material or finished good is imported or exportedâsoybeans, crude oil, automobiles, Swiss watches, you name itâitâs converted into and out of foreign currency.
How are these cross-border payments made?
Because most people and businesses keep their funds in some form of regulated bank, cross-border payments are pretty much a matter of sending money from a buyerâs bank to a sellerâs bank. So, how do most people and institutions do that? Through international wire transfers. Two cross-border payment networks you may have heard of are SWIFT and IBAN.
SWIFT, which is short for Society for Worldwide Interbank Financial Telecommunication, is a global messaging network used by financial institutions to send and receive info such as money transfer instructions. IBAN, short for International Bank Account Number, is a global numbering system for individual bank accounts thatâs used to facilitate cross-border transactions. Banks often require both numbers to send money overseas, but each bank will work primarily with one system or the other, depending on its country of origin.
There are other means of transferring money from one party to anotherâfrom automated clearing house (ACH) electronic transactions (such as direct deposit of your paycheck) to peer-to-peer blockchain networksâbut for most people and institutions, money is transferred from bank to bank.
Why do currency values differ?
If youâre new to the concept of exchange rates, then it might seem a bit strange that some currencies may be more or less expensive than other currencies. After all, weâre used to thinking about the price of goods and services, not the price of money itself. But yes, prices vary between currencies.
Itâs a supply and demand thing. If thereâs more demand for a certain currency, prices will likely get bid higher (as with any product sold at auction). If thereâs less demand for a currency, then prices will likely get offered progressively lower until supply and demand reach relative equilibrium.
Market exchange rates donât always reflect what a currency can actually buy. Economists often use a concept called purchasing power parity (PPP) to compare currencies based on the prices of similar goods and services in different countries rather than on market exchange rates alone.
Figure 1: BIG MACS ALL OVER THE MAP. As of January 2025, a Big Mac cost, on average, $5.79 in the U.S. Depending on a countryâs exchange rate vs. the dollar and the cost of inputs (e.g., wages, commodities prices, and supply chain dynamics), your burger will cost more, less, or about the same. Switzerland, at $7.99, has the worldâs highest average selling price, while the best Big Mac bargains can be found in Taiwan ($2.38). Data source: The Economist.
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How are currency exchange rates determined?
Currency exchange rates can be difficult to grasp for a couple of reasons:
Theyâre never really fixed (they change from second to second).
They vary slightly depending on whoâs buying and selling.
Currency exchange services, banks, and currency trading platforms may have slightly different bid/offer prices, believe it or not. Although these differences are typically just fractions of pennies (in dollar terms), they can really add up when the value youâre trying to convert is in the hundreds of thousands to millions (or billions) in currency.
Currency exchange rates are constantly determined by the markets, 24 hours a day, every day (except for weekends and certain holidays when banks are closed). In short, money pretty much never sleeps.
Who are the major participants in the global currency markets?
Anyone who needs to convert their money from one currency to another is a participant in the global foreign exchange market. For instance, if youâre in the U.S. and you purchase chocolates from Spain, where goods are priced in euros, youâre taking part in this market by converting dollars to euros.
But the main players can pretty much be summed up as follows:
Central banks control a countryâs monetary policy, meaning they exert the strongest influence over a countryâs interest rates and, in general, the value of a countryâs currency.
Multinational corporations involved in the import and/or export of goods participate in the currency markets to pay for goods and services.
Hedge funds and investment managers trade currencies as part of their investment strategies. Some may speculate in currencies directly, while others trade currencies in order to buy international assets as part of a diversification strategy.
There are plenty of other participants who trade in the currency marketsâfrom government agencies down to individual retail speculatorsâbut these institutions are the marketâs biggest players.
What role does the Bank for International Settlements play in the currency markets?
If a central bank is like the bank of all banks in a given country, then the Bank for International Settlements (BIS) is like the bank for all central banks. Established in 1930 and owned by 63 central banks, the BIS represents countries that make up around 95% of the worldâs GDP. Its goal is to foster financial and monetary collaboration among the central banks of the world and to provide banking services to central banks.
Although the BIS doesnât participate in the currency markets directly, it does play a crucial role in facilitating communication among central banks and fostering global monetary and financial stability. These arguably have a significant, albeit indirect, influence on the global currency markets.
The bottom line
The world of currency and cross-border payments is a complex ecosystem with multiple key players, including individuals, corporations, central banks, and governments. The fluctuating nature of exchange rates adds another layer of complexity to this global monetary mix.
Despite its complexity, understanding this global system can provide valuable insight into an increasingly interconnected world where goods, services, and capital frequently cross national boundaries.
