what are the factors that affect the value of currency in what way i.e.change in the factor affecting the value either positively or negatively….
Most Commented Posts
- August 8, 2008 -- Should "In God We Trust" Remain On American Currency? (41)
- February 26, 2009 -- Xtian: What right (specifically) would be violated by removing "In God We Trust" from US currency? (41)
- January 27, 2010 -- Do conservatives invest in gold because they have no faith in American currency? (37)
- November 24, 2008 -- Is “In God We Trust” on US currency a true statement? (35)
- January 3, 2009 -- Should the motto “In God We Trust” be removed from U.S. currency? ? (34)
- March 17, 2009 -- R&S what do you feel about "One nation under God" on US currency? (34)
- April 21, 2009 -- What would be the impact on American society if "In God We Trust" were removed from the currency? (34)
- May 7, 2008 -- Who else thinks that "in god we trust" should be removed from US currency? (33)
- January 9, 2009 -- Are coins and currency the same thing? (30)
- March 8, 2010 -- If your good looks were currency, what could you buy? (30)
This entry was posted
on Saturday, January 10th, 2009 at 4:05 am and is filed under Currency Trading.
You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
January 10th, 2009 at 4:05 am
AmeriKans don’t seem to understand that CURRENCY is just a COMMODITY… like corn, beans, gold, wheat.. etc… and it TRADES on a COMMODITY MARKET… and COMMODITIES are very sensitive to the law of SUPPLY and DEMAND…. when nobody WANTS TO BUY SOMETHING… the supply is larger than the demand and the price GOES DOWN… when the supply is SMALLER than the demand then the price goes UP.
January 10th, 2009 at 4:05 am
HERE IT IS:
Foreign Exchange being a commodity like any other commodities tends to fluctuate in price from time to time. There are various factors that cause the fluctuation in the rates of exchange;
* Rising interest rates cause ‘hot’ money to flow into the economy, therefore the demand of the domestic currency increases, and thus the currency appreciates in value and demand.
* Relative inflation rates, affect the economy’s international competitiveness, so if the economy is experiencing higher inflation rate than its trading partners, its purchasing power is eroded and thus the demand for that particular currency.
* Speculation normally affects the currency value when there is belief that a particular economy is ‘over heating’ and that soon there will be devaluation, then chances are high that, speculators will pull out their monies, causing there to be more supply than demand on the Forex for that particular currency, hence its depreciation.
* International trade affects the value of a currency, particularly through how much export or imports a nation may have, countries selling so many goods and services to others, tend to appreciate their Forex standards and those importing highly normally have their currency fall in value since they are spending more to their trading partners than they gain from them.
* Political and psychological factors are believed to have an influence on exchange rates. Many currencies have a tradition of behaving in a particular way for e.g. Swiss franc as a refuge currency. The US Dollar is also considered a safer haven currency whenever there is a political crisis anywhere in the world.
* Governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. However, the size and volume of the Forex market makes it impossible for any one entity to “drive” the market for any length of time.
ANSWER
January 10th, 2009 at 4:05 am
like any other price, an exchange rate varies with supply and demand. so if there is a sudden increase in the perceived strength of an economy, or good investment opportunities appear, it is likely that the demand for that economy's currency will increase and thus the price for that currency will increase: it's exchange rate will rise.
similarly if there is some sort of economic shock like the bankruptcy of a major bank or firm then it is likely that the perceptions of that economy would become more negative and more people would try and sell it's currency, this would increase the supply of that currency thus reducing it's price/exchange rate.
Like anything else it is about the perception that buyers and sellers have of the commodity. in the case of currency, the value depends entirely on what is going on where the currency is used and thus what can actually be done with the currency. if the quality of goods being produced in an economy is poor or the future economic outlook of an economy looks stormy then it is likely that the exchange rate for it's currency will fall.