Money is demanded in order for it to be used to buy and sell goods and services. The same applies to international currency. Foreigners buy pounds in order to buy British and other goods and services. The exchange rate is the rate at which the £1 will exchange with other currencies. For example in the Spring of 2004, the £1 exchanged for about 1.40 euros. Let us assume that one pound exchanges for 1.40 euros. Demand for pounds may come from two sources. Firstly, when British producers sell goods in France they will want payment in pounds, but will often be paid in euros. Secondly, French citizens who want to purchase shares in British assets, e.g. shares in Manchester United plc or Cadbury Schweppes, must change their euros into pounds to buy them.
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