Sound Knowledge of Currency Rates Is Your Passport to Fluctuating Forex Market
Investor words defines currency as any form of money that is in public circulation. Currency can involve both hard and soft money. Currency rates therefore are the rates with which a currency of one country can be exchanged with another currency of another country. Investor words say: “typically currency refers to money that is legally designated as such by the governing body, but in some cultures currency can refer to any object that has a perceived value and can be exchanged for other objects.” The designated currency rates are instrumental in deciding foreign exchange rate. Involving wide range and scope of buyers, foreign exchange market is a decentralized and over-the-counter market. While there are many factors that decide currency rates, one of the most important factors is the economic health of a country in question. Economic health then depends on various components such as debt load, deficit, spending policies. It is also dependent upon the purchasing power of the people of the country.
Another important thing to take into account is the fact that modern world is netted and weaved in the unprecedented revolution of information and technology. And, therefore, the balloon of independence has gone burst with a squelch of defeat. It is certainly not the independence but rather interdependence that matters the most. And, in a world of interdependence, any socio-political or socio-economical upheaval affects the entire world, especially the fluid foreign exchange market. While currency rates are generally decided by the Apex financial bodies or banks of the countries, they are undoubtedly driven by overall economic health of the country. And as we mentioned above, what this economic health involve. Inflation is a word that has been responsible to rock the parliaments of world’s big democracies and even dethroning the governments across the globe. It is this factor which is also responsible in deciding the currency rates. For example, if a country is facing high rates of inflation, it obviously translates into low currency rates. And, low inflation also means that the overall economic health of that country is sound. Thus, it automatically is understood, that lower the inflation rate, higher the currency rate. And higher the currency rates, higher the value of that currency. That currency and the country would inevitably enjoy stronghold in Forex market.
A country’s interest rate is also the factor determining currency rates. Fundamentally, interest rates are an opinion on the investors’ willingness to invest in Government bonds, shares or other securities. It is obvious that the higher interest rates do not attract investors. Also, if the tax mechanism for investors is complicated and demanding, investors are going to get away from that country. Financial freedom is also a factor that investors are always in need of. Thus, inflation rates, interest rates, socio-economic and socio-political factors, and tax mechanism are all the factors that contribute in determining the currency rates of any country. Based on these decisions taken by the Apex financial bodies of the Government or Government itself, there is an effect in the foreign exchange market. These decisions are crucial in deciding constantly fluctuating foreign exchange rate as well.
Another important thing to take into account is the fact that modern world is netted and weaved in the unprecedented revolution of information and technology. And, therefore, the balloon of independence has gone burst with a squelch of defeat. It is certainly not the independence but rather interdependence that matters the most. And, in a world of interdependence, any socio-political or socio-economical upheaval affects the entire world, especially the fluid foreign exchange market. While currency rates are generally decided by the Apex financial bodies or banks of the countries, they are undoubtedly driven by overall economic health of the country. And as we mentioned above, what this economic health involve. Inflation is a word that has been responsible to rock the parliaments of world’s big democracies and even dethroning the governments across the globe. It is this factor which is also responsible in deciding the currency rates. For example, if a country is facing high rates of inflation, it obviously translates into low currency rates. And, low inflation also means that the overall economic health of that country is sound. Thus, it automatically is understood, that lower the inflation rate, higher the currency rate. And higher the currency rates, higher the value of that currency. That currency and the country would inevitably enjoy stronghold in Forex market.
A country’s interest rate is also the factor determining currency rates. Fundamentally, interest rates are an opinion on the investors’ willingness to invest in Government bonds, shares or other securities. It is obvious that the higher interest rates do not attract investors. Also, if the tax mechanism for investors is complicated and demanding, investors are going to get away from that country. Financial freedom is also a factor that investors are always in need of. Thus, inflation rates, interest rates, socio-economic and socio-political factors, and tax mechanism are all the factors that contribute in determining the currency rates of any country. Based on these decisions taken by the Apex financial bodies of the Government or Government itself, there is an effect in the foreign exchange market. These decisions are crucial in deciding constantly fluctuating foreign exchange rate as well.
