Most of us have enough of a grasp on economics to realize that currency exchange rates go up and down against other world currencies. Many of us have experienced currency exchange rates in action when we have traveled overseas or bought something online from another country. But what we might not realise are the reasons behind the fluctuations in currency exchange rates.
What currency exchange rates actually represent is the value of one world currency in relation to another. Usually these exchange rates are shown as a ratio such as: 1 US Dollar = 105 Japanese Yen. The rates of exchange change all the time and can even fluctuate wildly within one single trading day.
The value of one currency in comparison with another is set by the supply and demand for that currency. Things that can affect the supply and demand of a currency include how popular investing in that currency is with foreign buyers. For example, if the US Reserve Bank decided to increase interest rates that were paid by banks, then investing in US Dollars would be very attractive and the currency exchange rates would strengthen. On the other hand, if the mint decided to print loads of extra money and distribute it among everyone, then the value of the dollar would slide against other currencies.
The inflation rate in a particular country is also an important factor in determining currency exchange rates. The higher the inflation rate, the less the currency is likely to be valued at since inflation devalues the currency over time.
It is essential that the nation's treasury gets the trade balance right if a currency is to remain strong. When the prices paid globally for exported products are higher than what the same country is importing, then the economy will be in a good position and the currency will remain strong. Foreign investors will purchase more with that country's currency and the economy will tick along. If the reverse is true, then this devalues the currency against others.
People are affected by currency exchange rates every day. It is not something that just affects the big investors and traders of Wall Street. The currency exchange rate determines how much everyday people are forced to pay for imported goods and products.
When the cost of exporting goods rises due to the currency exchange rates, then businesses can be forced to cut costs and this can lead to job losses. This is another way that currency exchange rates can affect regular people and their lives.
Currency exchange rates are caused to fluctuate thanks to a number of economic factors. These factors can then affect the economic landscape of a nation and cause it to experience great prosperity, or depression as well. The recent economic crisis in the world has seen great fluctuations take place in some of the world's leading currencies. - 23309
What currency exchange rates actually represent is the value of one world currency in relation to another. Usually these exchange rates are shown as a ratio such as: 1 US Dollar = 105 Japanese Yen. The rates of exchange change all the time and can even fluctuate wildly within one single trading day.
The value of one currency in comparison with another is set by the supply and demand for that currency. Things that can affect the supply and demand of a currency include how popular investing in that currency is with foreign buyers. For example, if the US Reserve Bank decided to increase interest rates that were paid by banks, then investing in US Dollars would be very attractive and the currency exchange rates would strengthen. On the other hand, if the mint decided to print loads of extra money and distribute it among everyone, then the value of the dollar would slide against other currencies.
The inflation rate in a particular country is also an important factor in determining currency exchange rates. The higher the inflation rate, the less the currency is likely to be valued at since inflation devalues the currency over time.
It is essential that the nation's treasury gets the trade balance right if a currency is to remain strong. When the prices paid globally for exported products are higher than what the same country is importing, then the economy will be in a good position and the currency will remain strong. Foreign investors will purchase more with that country's currency and the economy will tick along. If the reverse is true, then this devalues the currency against others.
People are affected by currency exchange rates every day. It is not something that just affects the big investors and traders of Wall Street. The currency exchange rate determines how much everyday people are forced to pay for imported goods and products.
When the cost of exporting goods rises due to the currency exchange rates, then businesses can be forced to cut costs and this can lead to job losses. This is another way that currency exchange rates can affect regular people and their lives.
Currency exchange rates are caused to fluctuate thanks to a number of economic factors. These factors can then affect the economic landscape of a nation and cause it to experience great prosperity, or depression as well. The recent economic crisis in the world has seen great fluctuations take place in some of the world's leading currencies. - 23309
About the Author:
Supply and demand rules currency exchange rates. Find out about an exchange rate calculator and the many variables that help current value of different monies.
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