Currency movements can affect the cost of a trip. For example, a favorable rate of exchange means that your local currency is worth more and will provide you with more buying power. In fact, travelers whose local currency has appreciated dramatically will find that they will be able to afford much more on their vacation this year. On the other hand, a less favorable exchange rate of exchange means that your currency will be worth less resulting in less buying power overseas. If your domestic currency has depreciated significantly you may find your options more limited. As a traveler, your main concern should be to get the most favorable rate possible. In order to do this, however, one must first understand the foreign exchange market.

In the foreign exchange market, the currency of one country is exchanged for an equivalent amount of the currency of another. Foreign exchange rates are not static, but change dynamically-sometimes many times within a single minute. At this point, however, most of you might be asking, why does it take more dollars to buy a euro this week than it did last week? Why would it cost you more today to buy a cup of coffee in another country than it did before, even though the price has remained the same there? The answer has to do with the value of a country's currency relative to the price of another currency.

Currencies, just like any other commodity that can be bought or sold, are subject to the laws of supply and demand. When more people want a particular currency, the cost of the currency in terms of other currencies will go up. When demand decreases or people do not want to hold a country's currency, the value will go down. One factor that directly affects demand for a currency is international trade. For instance, if I buy a Japanese car in the US, I give dollars to my dealer, who gave dollars to his distributor, and so on. But before the profits are banked by the carmaker in Japan, they are converted into Yen. There is a surge of buying of Japanese cars this month, the result is going to be increased demand for Yen-which will in turn cause an appreciation in the Yen's value. An increase in international investment into Japan would have the same effect, since more money is being converted into Yen to purchase Japanese assets.

As a traveler, understanding currency fluctuations will help you to take advantage of favorable rates of exchange and spot a deal when you see one. For example let