FACTORS THAT AFFECT CURRENCY RATES

Posted by Deb | Forex,Guest Post | Sunday 22 January 2017 10:02 pm

Following please find a fewa factors which affect the fluctuation of foreign exchange rates. People who engage in money transfer internationally should stay updated on these factors and be able to decide the best times when they can carry out their money transfer. One can avoid losses in the currency exchange rates by opting for the flat exchange rates service that maintains a flat rate despite the market fluctuations.

Inflation Rates
Market inflation causes change in currency rates. The value of currency appreciates when a country is experiencing low inflation rates. When the inflation rate is low, good and services price will increase at a low rate. When a country is experiencing high inflation rates, the currency value depreciates and this leads to very high interest rates.

5857220614_2dab24d89a_bInterest Rates
Varying interest rates affect the value of a currency and also affects the rate of dollar exchange. When a country has high interest rates, its currency value appreciates because lenders make more profit, this results to increased foreign capital and high exchange rates.

Country’s Current Account/ Balance of Payments
When a country has loss on its current account because of earning less money from its exports and spending more on imports, this leads to depreciation. Balance of payments can lead to unstable domestic currency rates.

Government Debts
When a country has a lot of debts, it cannot acquire foreign capital which makes it experience inflation. Foreigners do research and if they foresee a debt in a certain country, they sell all their bonds in an open market not escape the consequences they might face in future. As a result, the exchange rate value of this country goes down.

Terms of Trade
Terms of trade are the ratio of price between imports and exports. A country has better terms of trade of the prices of exports are greater than prices of imports. This country will experience a high revenue, high currency demand and increased currency value.

Political stability and performance
Political and economic stability of a country determines the strength of its currency. Foreign investors are always attracted to countries that are stable both economically and politically. Countries that experience political and economic turmoil often miss a lot of investment from foreign investors. High inflow of foreign capital causes a country’s currency value to appreciate while countries facing political and economic crisis experience low currency value.

Recession
When countries experience recession, their interest rates fall drastically making it impossible to attract foreign investors. The currency values of such countries become weak leading to low exchange rates.

Speculation
Foreign investor will invest more in Countries that have a possibility of experiencing high currency values in future to plough back more profits. This leads to a high demand on that currency and the currency value rises up.

Georgina This guest article has been submitted by Georgina Cumber, a freelance finance blogger specializing in the foreign exchange and bad credit industry.

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