Foreign currency prices are dependent on money exchange rate. A currency exchange rate is a rate at which money of one country is exchanged for the currency of another nation. Because of this, it is like any other asset or product that you purchase at the certain price.
Cost of a currency can be determined by 2 ways: a floating and fixed rate. A fixed or a pegged rate is the speed that's determined by the government or the central bank. These prices are official exchange rates and are often determined against major currencies like the U.S. dollar, the euro or the yen.
The government always tries to keep the local exchange rate by buying and selling its own currency in the foreign exchange market to keep foreign currency prices. And, it's because of this requirement to keep the speed; the central bank of any country should keep the high level of foreign reserves.
The central bank uses this reserved amount to discharge or absorb the additional funds into or out of the marketplace. These official currency exchange rates could be corrected if and when required.
Another factor on which foreign currency prices are based is floating exchange prices. As the name implies, floating rates will change now and then. These prices are determined by private economy through the law of demand and supply.
These prices can also be termed as self-correction since the moment supply and demand changes, these rates become changed. By way of instance, if the currency of the country isn't in demand in the foreign exchange market, then, it's normal that nobody wants to get it.