Foreign currency rate is defined as the rate at which a country's
currency may be converted to another currency. Currency exchange rates
are influenced by certain factors which include, current account on
balance of payments, interest rates, financial inflation and growth.
If you are an expert sending money home; an aspiring Forex trader; a
finance fan who is enamoured by world economics, then you must know
the reason(s) why foreign exchange rates fluctuate.
Interest Rates:
In this context, the rate that is charged for using or lowering costs
of a particular country is known as an interest rate. Recharged when
money is obtained, paid when money is saved, interest levels of a
country attribute to the value of foreign exchange rate of its foreign
currency.
For instance, in the event that the interest levels of Europe rise in
comparison to other countries for investments, it will appeal to more
foreign investments, therefore earning more savings in the European
banks. This will improve the demand for the European euros, creating
an euro appreciation.
Higher interest levels will cause currency value appreciation and the
vice versa.
Inflation Rates:
Pumping rate is the rate where the prices of goods and services climb
in a country. Countries which may have a low pumping rate, come with
an appreciated foreign currency value, thereby increased purchasing
power. Higher inflation rate will hamper purchasing electricity.
For instance, in the event that a chemical in Canada costs $1 in the
12 months, and the inflation rate is 10%, the same chemical will cost
$1. 10 the subsequent year.
Balance of Payments:
Equilibrium of Payments or Current Accounts reflect the obligations
paid and received between a rustic and their trading partners for
imports, exports and debts. A deficit in the current account means,
there's more of importing and spending (purchasing foreign currency),
than exporting and acquiring (earning foreign currencies). This
excessive demand for foreign currency will lower the country's
exchange rate.
Public Financial debt:
Countries usually borrow to fund large public sector projects. When
such an activity encourages the domestic economy, international
locations with high deficit are much less likely to attract foreign
investors. This causes inflation that can bring about a dip in the
value of exchange rates.
Economic Performance and Personal Balance:
A country with a stable political and economic performance attracts
international investments. An increase in foreign investments will
bring about the appreciation of the currency value. Political and
monetary disturbances in a country will repel overseas investors,
thereby creating rising and falling exchange rates.
The connection or relation between exchange rate and the above
mentioned factors (and many others) are subtle and intriguing.
Although it sounds complex, it is actually simple if one regularly
follows on world affairs and global economy. But if you are simply a
humble expatriate, planning to send money at the right moment to save
on exchange rate differences, then the above information is a starter,
and there are many Forex agents who will assist on the same.
