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Fundamental Factors That Affect Currency Values

2 min read

Foreign Exchange rate is one among the foremost important means through which a country’s relative level of economic health is decided. A country’s exchange rate provides a window to its economic stability, which is why it’s constantly watched and analyzed. If you’re thinking of sending or receiving money from overseas, you would like to stay a keen eye on the currency exchange rates.

The rate of exchange is defined as “the rate at which one country’s currency could also be converted into another.” it’s going to fluctuate daily with the changing economic process of supply and demand of currencies from one country to another. For these reasons; when sending or receiving money internationally, it’s important to know what determines exchange rates.

  • Terms of Trade

Related to current accounts and balance of payments, the terms of trade is that the ratio of export prices to import prices. A country’s terms of trade improves if its exports prices rise at a greater rate than its imports prices. This leads to higher revenue, which causes a better demand for the country’s currency and a rise in its currency’s value. This results in an appreciation of exchange rate.

  • Government Debt

Government debt is debt or debt owned by the central government. A country with government debt is a smaller amount likely to accumulate foreign capital, resulting in inflation. Foreign investors will sell their bonds within the open market if the market predicts government debt within a particular country. As a result, a decrease within the value of its rate of exchange will follow.

  • Inflation Rates

Changes in market inflation cause changes in currency exchange rates. A country with a lower rate of inflation than another’s will see an appreciation within the value of its currency. The prices of products and services increase at a slower rate where the inflation is low. A country with a consistently lower rate of inflation exhibits a rising currency value while a rustic with higher inflation typically sees depreciation in its currency and is typically accompanied by higher interest rates

  • Interest Rates

Changes in rate of interest affect currency value and dollar rate of exchange . Forex rates, interest rates, and inflation are all correlated. Increases in interest rates cause a country’s currency to understand because higher interest rates provide higher rates to lenders, thereby attracting more foreign capital, which causes an increase in exchange rates

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Forex trading and any instruments related to Foreign Exchange Market are Speculative and carry substantial risk of loss of either partial equity or the entire deposit amount. Leverage adds up to the risk, before considering to invest in this venture, you should first consider your financial position and may seek the help of an independent financial advisor. FXtriangle dis-recommends the usage of loan instruments to trade in this market as it can hamper financial position. Please do not invest the money that you cannot afford to lose. FXtriangle provides all its services throughout the Globe Excluding (Nigeria, British Virgin Island & the Islamic Republic of Iran) and also provides limited service in some jurisdictions where investment in Overseas markets / Fx Exchanges are prohibited by Law If you are not sure to contact us before using any of our services. FXtriangle acts as an Independent Corporate Financial Advisor and connects you to various overseas exchanges and cannot be held liable for any financial damage occurring through their side. All of our partnered institutions are regulated in various jurisdictions.FXtriangle conducts an independent background check before partnering with any institutions to fulfill your investment objectives smoothly. The usage of our Business name, Logo or any trademark in any financial forum, website, review website, complaint arena, Billboards without our written permission will attract lawsuits.