A country’s economic stability, growth or failure largely depends on the value of their currency. There are several important factors that affect the value of currency, yet what are the most important things to look at if you’re evaluating your country’s economic well-being? I recently came across an article that lists the four factors that affect the value of currency, specifically the US dollar, listed here:

1. What Affects the Value
of the US Dollar?
By Dennis Cuneo

2. Supply &
Demand
• A demand for US
products leads to an
increased demand for
US dollars.!
• The buyer of US goods
will have to purchase
those goods and
services with the US
dollar. Since they need
to exchange their own
currency, they’re
essentially buying US
dollars.!
• This transaction is
usually conducted in
the form of bonds
issued by various
corporations, so the US
receives more benefits.
$$$

3. Trade & Investment
• Often considered by analysts to
be the most influential aspect
in the economy to the dollar’s
value.!
• Balanced trade represents the
difference between exports and
imports in the US, with exports
hopefully higher than imports.!
• When exports are higher than
imports, it’s called a surplus;
when the numbers are
reversed, then it becomes a
deficit.

4. Inflation & Interest
• The value of your currency
exchange rates changes with
the market’s inflation.!
• A lower inflation rate means
the prices of your goods and
exchanging them with other
countries will increase at a
slow-but-steady rate.!
• If a country maintains higher
interest rates, then it actually
boosts the value of currency
by drawing in foreign capital.

5. Sentiment & Philosophy
• The way that the rest of the world views the
US matters a lot.!
• If a country views us as “weak” with a
struggling economy, they could sell back
their bonds, which is bad for business.!
• Financial relationships and history are both
important in regards to the competency.!
• Treat and nurture trade relations with the
utmost respect.