Final answer:
The value of major currencies like the American dollar, Japanese yen, EU euro, and British pound is determined by the foreign exchange market and based on supply and demand. The U.S. dollar is the leading currency in this market, and exchange rates are volatile, significantly affecting international business profits.
Step-by-step explanation:
Today, the value of currencies such as the American dollar, Japanese yen, European Union euro, and British pound is primarily dictated by the foreign exchange market, which operates on the principles of supply and demand. These currencies are no longer backed by physical commodities like gold or silver; instead, their value floats freely in the market.
The U.S. dollar is the most dominant currency on the foreign exchange market, with the euro, the British pound, the Australian dollar, and the Japanese yen also playing significant roles. Exchange rates can fluctuate rapidly based on economic events, such as the Brexit vote, where the pound's value dropped dramatically overnight, illustrating the volatility inherent in the foreign exchange system.
For businesses involved in international trade, these fluctuations in exchange rates are pivotal. A swift change can have substantial implications on a company's profits due to the impact on the cost of buying, selling, lending, and borrowing across borders.