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currency exchange
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Few of us could claim to be expert economists, but most of us have at least a basic understanding
that currency exchange rates around the world affect each other and that the levels change
regularly. There are many reasons that a nation's currency exchange rates can strengthen or
decline.
Rates reflect the relative value of a currency against another world currency. Rates are expressed
as a ratio compared to another currency. For example - 1 US Dollar = 105 Yen. These rates
fluctuate a little each day, and sometimes they can rise or fall dramatically depending on what it is
happening in international traded and economics.
Supply and demand of the currency is one of the key factors determining the exchange amount.
Demand for the currency comes when lots of investors want to invest using that currency. This can
be prompted by higher interest rates in a country, which will give investors a better return on their
money. Supply of currency can affect the exchange rate in tandem with demand. If there is a lot of
people wanting to purchase and not so much currency available the value will be high. On the
other hand, if the federal mint prints lots of extra money and releases it into the market place then
supply will be higher and demand for the currency can drop, which will make exchange rates drop.
The inflation levels in a country can also affect currency exchange rates. If an inflation level is
high, then the currency will be devalued as foreign investors will be less likely to invest in a
currency that has a high level of inflation and will not give them a good return over time. The
reserve bank monitors the level of inflation, but there are several external factors that influence the
inflation level such as the cost of transporting goods and petrol.
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 exchange rates regularly, as they determine the price that people pay for
imported goods in a country. They also determine how popular your country's exported goods are
to other countries.
When the trade balance is out and currency exchange rates are not right. Local businesses and
producers may be forced to cut costs to remain internationally competitive. This can mean that
people lose their jobs and economic stability is affected.
2. There are a number of economic forces that affect the way that currency exchange rates perform.
Reserve banks in each country work to control the factors as much as possible that affect these
rates and provide the best environment possible for a well functioning and effective economy. Next
time you see the financial markets on the evening news, you will know more about what must be
happening in the local economy to influence the currency rates.
Numerous circumstances rule currency exchange rates. Learn all about an exchange rate
calculator and the many variables that help dictate the value of currency.
Article Source:
http://EzineArticles.com/?expert=Jonathan_J_Waller
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to start making money with foreign exchange market and learn profitable rules and techniques
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