Foreign exchange
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Within the financial market, there is a subset of financial instruments called the Currency market. This market is special as although it is technically a debt security, it does not act like one.
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The currency market is also called the foreign exchange market (Forex) and it is where currencies are traded. In a forex market, units of currency are bought and sold with other units of currency. The determining price of currencies is called the exchange rate.
Perhaps you have seen this before, so lets demonstrate this with a graph of the Singapore Dollar to the Malaysian Ringgit.
Here, the numbers on right represent the exchange rate for SGD:MYR. It determines how much Malaysian ringgit I would get for 1 Singaporean dollar.
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The forex market works on the principle that currencies can change this value. This is called a Floating exchange rate. In some special circumstances, some currencies might have a Fixed exchange rate, but we'll leave that aside for now.
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Investors buy and sell currency in the hopes that the currency they are buying will increase in value over time. In this example, you can see the value of the Singaporean dollar rising in value as it can by more Malaysian ringgit.
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