Forex Market
Forex is short for Foreign Exchange and refers to the market for currency between international banks. The forex market is divided up into levels of access. The inter-bank market is at the top of the levels of access, which is made up of the largest investment banking firms. This accounts for 53% of all transactions.
Next there are smaller investment banks, multi-national corporations and large hedge funds. The main trading center of the globe is London, and other points are New York, Hong Kong, Tokyo, and Singapore. In the Forex market, currencies are traded against each other. XXX and YYY represent each currency. YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency).
For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.5465 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair.
The second currency, counter currency, was the weaker currency at the creation of the pair. If something affects the XXX currency, it will also affect the YYY currency. Currency prices come from supply and demand, mostly, and a result of other changing factors.
The factors are always and constantly shifting. Economic, political, and market psychology factors all influence the shifting supply and demand of the foreign exchange. Economic policy as well as economic conditions can weigh heavily on the value. Because of political happenings, this can influence the nation's economy, therefore lowering the value of their currency.
And events that happen internationally can make investors wary about the value of their currency, thus the factor being based on market psychology.