5. Currencies and Foreign Exchange Markets

Currencies are not really an asset class of their own but rather the medium through which almost all other current consumption and capital asset investments are denominated. Just as many individuals are familiar with the Australian dollars in their wallet or bank account they use for day-to-day purchases or investments in Australia, they understand that they will need British pounds in their wallet or bank accounts to buy groceries, properties, or stocks in Britain. In Sect. 1.​3, cash and currency was described as the liability of a bank, ultimately the central bank or monetary authority in many countries or monetary unions. Cryptocurrencies like Bitcoin and Ethereum, which have been increasingly developed and used in the mid-2010s, are covered separately in Chap. 9, though some of the mechanics described here will also apply to digital currencies.