The economic position of a country works on various factors and exchange rate is one of them. Demand and supply chain, the rate of interest, inflation and foreign investment are some other factors that cause the foreign exchange rates to fluctuate. In fact, no country has a steady currency rate. It varies according to a shift in demand or supply and economics.
Revaluation of currency is also a factor that affects the exchange rate. The exchange rate also provides economic stability that is constantly analyzed or is in focus. Most currencies are freely traded or pegged around the world and this causes rates to fluctuate. If you want to know about the current exchange rate on currencies, then you can visit BookMyForex.com.
Exchange rates float freely so the rates are never steady. The value of currency also depends on the flow of currency in and out. If the demand for a currency increases, the value of the currency also increases in the foreign market.
This overall affects the economic position of the country. There are no set indicators so it is difficult to know about the fluctuations in the exchange rates. It depends on many factors that contribute to change and cause rates to fluctuate. Read on to know how often the rates fluctuate.
Currency is traded 24/7 and round the clock. If it’s traded in the U.S at one time, the other time it will be traded in some another part of the world. This is a major reason why the value of the currency is never constant. Fluctuations are caused because money is traded all the time in the foreign exchange market.
Trading and banking are the two main contributing factors that cause fluctuations. When the banks around the world sell or buy currency, the actual value of the currency fluctuates. Even if it is for exchange value, it does affect the currency of the country. It also affects the exchange rate market of the country.
Tourism and acquisition
The tourism of the country also affects the fluctuation. If the demand for tourism is high, it will affect the currency value of the place. If the demand is low, the currency value may decline.
Another key factor is the acquisition or merger. If there is an acquisition or a merger between two companies of different counties, it majorly affects the currency. Mergers of two international companies can cause a fluctuation in the currency value. Some big mergers also affect the economic position of the country.
Political stability or state affects the international performance of the country. It also determines the currency strength. A country with less political commotion attracts good foreign investment. And, if there is an increase in foreign capital, it leads to an increase in the value of the currency.
If there is sound stability in economic reforms, then the fluctuation is less. However, the country where there is a lot of political commotion may experience depreciation in the currency value. So, political stability plays a major role in exchange rate fluctuations.
Current account deficit
Current account deficits also affect fluctuation of the exchange rates. If there are more imports or spending on foreign trade, then it affects the currency value. If there are more exports, then the exchange value also increases. The value of currency keeps changing based on the imports and exports of the country.
The rate is never fixed in trading and this causes major fluctuations at times. Current account deficit is another factor that helps to evaluate the economic position of a country. Public debt and borrowing also affect the currency value, the value declines to cause a fluctuation.
The rate of interest and inflation
A change in interest rate affects the exchange rate and value of the currency. Increase in the interest rate causes an increase in the value of the currency. This makes a direct impact on the exchange rate too. A decrease in interest rate causes a decline in currency value and this can cause fluctuation too.
The rate of interest and inflation are also co-related. Foreign investments are affected by interest rate and that affects inflation. Exchange rates fluctuate because of inflation or hyperinflation.
Fluctuations in exchange rates or currencies have a major influence on the economy. A declining rate decreases the purchasing power of income and also impacts the capital gains. Exchange rates fluctuate depending on the country’s growth and position too.