Trading foreign currency is not that easy as it seems to be. It is way too different than any other business done all around the world.
An individual stepping into currency exchange business needs to have a thorough understanding of the currency exchange rates and it’s importance for businesses, currency traders, investors and, of course, travelers.
But what is the mystery behind the constant fluctuation of currency exchange rate which makes them go up and down? What are the factors that influence the rate of currency exchange?
For your consideration, here are a few of the factors that affect currency exchange rates:
• Supply and Demand: Selling and buying of foreign currency are exactly like shares, bonds, or other ventures. To successfully sell or buy currency, awareness of supply and demand is required, which is the basic financial key points and the most crucial one of all.
• Political Instability: Currency is released by governments. For a currency to maintain its value (or even can be found whatsoever) the federal government which backs it must be strong. Countries with uncertain futures (anticipated to revolutions, battle or other factors) will often have much weaker currencies.
1. Currency investors don’t want to associate risk sacrificing their investment, therefore, will invest somewhere else. With a little rise in demand for the currency, the purchase price drops.
2. To get more briefing on currency and political stability, you can browse this link.
• Economic Power: Financial uncertainty is one of the huge factors as political instability.
1. A currency backed by a well-balanced government isn’t apt to be strong if the market is in a declining state.
2. Even worse, a lagging market may have a hard time attracting buyers and without investment, the current economic climate is affected even more.
3. Currency investors know this, so they avoid buying a currency supported by a fragile current economic climate. Again, this triggers demand and value to drop.