What are the factors that affect Foreign Exchange Rates?

Each and every country in the universe has to depend on the other country for one or the other resourcefulness. They may hardly be any country on the globe that is provided with all the necessary resources by the nature. Isolate state cannot walk towards its progress until and unless it carries trade with the other countries. The trade between the countries around the globe is the main reason behind the exchange of foreign currencies and develops a foreign exchange rate between countries. It sets new dimensions for countries to trade international. It is indeed a representative of a country’s economy.  A country can introduce new products and promote it in international markets by identifying price of products according to the currency exchange rates. These forex rates help in the exchange of currencies between countries.

How much the currency rate is important?

A currency exchange rate can be considered as the value of one country’s currency in terms of another currency. The monetary values of various currencies are decided by the foreign exchange market. Foreign exchange market is a financial market for merchandizing currencies. With the help of foreign currency rate countries assist international trade and investment among various international buyers and sellers. These services are rendered by the foreign exchange market. A wide range of factors affect the international forex rates. These factors include change in prices, national and international trade, capital movements, speculations, economic strength, government policies, stock exchange operations, political factors, etc. Moreover, even the value of currency of a country keeps varying which also results in the variation of foreign exchange rates.

How the currency becomes more valuable?

Currency of a country seems more valuable when it is in the stage of overfull demand. An overfull demand is defined as a kind of demand where the demand of a product crosses the supply of demand. The currency exchange rate highlights the worth of a currency. The variation in forex rate occurs when there is either a modified transaction demand for money or an increased speculative demand for money. The transaction demand is affected by a country’s level of business activity, gross domestic product (GDP), and the number of people employed. In general high foreign currency rates of a country’s currency make it more demanding and enable the country to bring harmony in the demand and supply of its currency for strong economy. More number of unemployed people in the country will surely result into a decreased expenditure on goods and services.

How foreign exchange rates are calculated?

The calculation of foreign exchange rates involves the existence of two independent currencies. Independence may mean the key for the survival as every element in the universe seems to be dependent on one another. Same is the case in forex rates, some of the dominating currencies seems to be independent but somehow they are dependent on the other currencies.  People living in different area and regions of the world follow their own culture and life styles; they have their own language, cultures, thought and moral values. They are independent from rest of the world but when their currency came into consideration it needs to be dependent on others. The foreign currency rate is calculated in agreement with other the countries. They may not be living in accordance with other people but they may sell and purchase in the same manner. The forex rates need to be considered regardless of the economic strength of a country. It is not the tool only to be used by the developed countries.  Indeed it’s one of the important economic tools for under developed countries to cross the economic barriers and participate in the international market.

Foreign exchange rates are the key performance indicators of a country’s currency growth. It lays the foundation of a country’s share in the international trade and markets. The forex rates held countries to recognize their investments with international stakeholders. It proves a backbone in the launching and promoting new products in international markets. It has its own worth when compared with other currencies. Currency exchange rates are calculated by taking into account other economic factors.