According to the U.S. Department of the Treasury, the foreign exchange market, or FOREX, is the market in which investors buy and sell different currencies. It is the world's largest and most liquid financial market, moving an astonishing average of nearly $2 trillion a day in traded currency. For some sense of scale, consider that as of March 2008, the New York Stock Exchange moved a comparatively small average of $169.6 billion a day. Because it is open 24 hours a day, 5 days a week, the FOREX is also one of the world's most accessible markets. In fact, individual investors are able to trade currency at the same rate and in the same manner as large corporations, investment banks and hedge funds. In addition to these unique attributes, the FOREX is also a decentralized market, meaning there is no one physical location where traders go to complete their transactions; instead, they buy, sell and exchange currencies using a network of various devices, among which the Internet is probably the most important. Although the idea of trading money may seem strange and even far-fetched to some people, it is a vital part of the international economic and political spheres.

A government's current-account deficits, public debt, terms of trade and overall economic health also have a noticeable effect on its currency's exchange rate. When two countries trade with each other, they record the quantity and price of their imports and exports, which includes goods, services, dividends and interest. If one of the countries spends more on foreign trade than it earns, then it typically borrows capital from outside (foreign) sources to make up the difference, also known as a current-account deficit. From the country's point of view, this means that the demand for foreign currency is high relative to the demand for its own, causing its currency to lose value and its exchange rate to drop.

Similar to current-account deficits are terms of trade -- ratios that compare a country's export prices to import prices. If international demand for a country's exports increases, then the prices of its exports will rise. The money it receives from these increased revenues then improves the value of its currency, which in turn boosts its exchange rate.

Also important in the minds of foreign investors and trading partners is a country's political stability and economic health. In general, these groups will only invest their capital in countries with strong economic performance, low economic risk and minimal public debt.