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Definition of 'Currency'

Currency is a system of money in common use in a particular country or region. It is usually issued by a government and consists of coins and paper notes. The value of a currency is determined by supply and demand, as well as by government policies.

There are two main types of currency: fiat currency and commodity currency. Fiat currency is a currency that is not backed by any physical commodity, such as gold or silver. It is issued by a government and its value is based on the government's promise to redeem it for goods or services. Commodity currency is a currency that is backed by a physical commodity, such as gold or silver. The value of a commodity currency is based on the value of the commodity that backs it.

The most important function of currency is to facilitate trade. Currency allows people to exchange goods and services with each other without having to barter. It also allows people to save for the future and to invest in businesses.

Currency is also used to measure the value of goods and services. The price of a good or service is expressed in terms of the currency that is used in the country where it is sold.

Currency can also be used as a store of value. This means that it can be saved and used to purchase goods and services in the future. However, currency is not a perfect store of value because its value can fluctuate over time.

The value of a currency can be affected by a number of factors, including inflation, interest rates, and political stability. Inflation is the rate at which the prices of goods and services increase. When inflation is high, the value of a currency decreases because it takes more money to buy the same amount of goods and services. Interest rates are the rates at which banks lend money to each other. When interest rates are high, the value of a currency decreases because investors are more likely to put their money in interest-bearing investments than in currency. Political stability is also important for the value of a currency. When a country is politically unstable, investors are less likely to invest in its currency, which can lead to a decrease in its value.

The value of a currency can also be affected by speculation. Speculation is the buying and selling of a currency in the hope of making a profit. When there is a lot of speculation in a currency, its value can be volatile.

The value of a currency is important for a number of reasons. It affects the cost of goods and services, the ability to save and invest, and the competitiveness of a country's exports.

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