What determines the value of a currency note?

What determines the value of a currency note? At first glance, what is a currency note? Just a piece of paper, isn’t it? But then, when currencies are traded in the markets, they essentially behave like goods that can be bought or sold. In this case, what determines the price of a currency? Well, when a currency is traded, its price is determined by how much the market values it. In other words, the demand and supply of a currency determine its value. When the demand for a currency is more, its value increases. For instance, if the demand for goods and services paid for in the Indian rupee increases, the value of the rupee also increases. Conversely, when the supply of a currency is more, its value decreases. Here, for example, if the RBI decides to print more currency notes, the supply of the Indian rupee increases, and so, the value of the rupee decreases. Like this, when the value of one currency changes, the exchange rate related to that currency also changes. To learn more about the various factors that affect the exchange rates of difference currencies, Check out the next chapter in this module of Smart Money.