Hi. I must confess that I am a layman when it comes to the knowledge of currency exchange. By layman, I mean I am not like the professional banker out there who had years of experiences with the currency exchange. By layman, I do not mean that I am not educated or knowledgeable about currency exchanges. I am simply not professional. I do have a few years of study in school with economics and I do read up once in awhile on currency stuffs.

Being a layman, I can explain in layman term how the currency rates are determined. You do not have to wonder about some big economic or Forex lingo which non-layman may tend to use all too often, which confuses you, and confuses me, equally much as well.

Currency trade is the trading of two countries' currencies. For instance, in this case, we shall use the examples of the currency trade between USA and Singapore.
When we say that the exchange rate of currency between US to Singapore is 1 US dollars to 1.6 Singapore dollars. We simply mean that 1 US dollar is able to buy for yourself $1.60 worth of Singapore dollars.

The more Singapore dollars US dollar is able to buy, the more stronger the US dollars is. For instance, if the US dollar is able to buy SG $3(Singapore three dollars), then the US dollars is definitely stronger than when US$1 can only buy SG$1.60.

How do people determine whether one US dollar can buy SG$1.60 or SG$3. This is determined by demand and supply. (I will try to explain in layman's term about this demand and supply.)

How US dollars become Big

When many Singapore people want to travel to US to do business, they need to change their Singapore dollars to US dollars. Supposing that there are only 10 US sellers who are willing to sell away their US dollars, but there are 100 buyers from Singapore who are willing to use Singapore dollars to buy 1 US dollars.
There is a shortage of sellers, but a high number of buyers. The 10 US sellers who want to sell their US dollars can now sell them at a higher price to their Singapore buyers. Since buyers from Singapore urgently need to do business in USA and so they need US dollars in order to do that, some of them will be willing to pay a higher price to get their US dollars. To buy 1 US dollars, Singapore people must now pay SG$5 to buy US$1.

In order for US dollars to become big, situations must arise to ensure that more people want to buy US dollars than sell them. Situations that can help US dollars become big is when there is good economy

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