The terms money and currency are often used interchangeably, but they have different meanings. Money is an intangible system of value that supplanted bartering thousands of years ago, while currency is the tangible form of it—paper notes and coins. Today, there are more than 200 national currencies, including cryptocurrencies like Bitcoin, which don’t have physical form. These are all widely used in international trading and as reserves by countries around the world.

Currencies are regulated by governments to reduce transaction costs and make them more stable. They should be fungible (items can be exchanged for other items of equal value), durable, portable, and recognizable to facilitate trade. A major danger of a currency is inflation, which makes each unit of the currency worth less as more are produced. Inflation can also decrease demand for a country’s exports, causing foreign investors to shift investments elsewhere.

There are three types of currencies: foreign, domestic, and local. Foreign exchange rates are based on a combination of supply and demand, interest rates, global economic events, and the prevailing rate in the country where the currency is issued. Domestic and local currencies are backed by a country’s assets, such as land and goods.

Companies, investors, and consumers want to be able to convert one currency into another for the purpose of trade and investing. The forward market offers a variety of tools, such as swaps and options, for currency conversion.