Before entering into the business world, one needs to have thorough knowledge of it. This is what always experienced and successful entrepreneur have mentioned in their reviews and interviews.
If we talk about currency trading, nothing is different, being a newbie in the field, you need to have proper understanding that exactly how currency exchange rates work, whether you are a business person, investor’s, currency traders and, of course, vacationers.
But what is the reason behind the currency exchange rate or the fluctuations down?
Here are all the answers to this question. There are few factors that affect currency exchange rates:
1. Supply and Demand: Currency is bought and sold, similarly like stocks, bonds, or other investments. And just like any other investments done, you can buy or sell almost anything. Automatically, this whole process works on the “Supply and demand” theory because that directly influences the price.
Note: Supply and demand is one of the most elementary monetary principles, but yet serves as a good starting point to comprehend why currency exchange rates oscillate.
2. Political Stability: Currency is issued by governments, which is pretty obvious. In order to retain the value for a currency the government needs to be strong, financially. If they have strong monetary backup, every trader would like to buy currency of their country.
Note: Countries that are still at a growing stage and struggling with their undefined futures usually have much feebler currencies. Obviously, none of the currency traders would want to risk losing their investment and so naturally they will invest somewhere else.
3. Interest rates: REMEMBER…..Higher interest rates always entice currency traders, because they can earn good amount of interest on the currency that they have bought. You can get an overview about the currency market from various internet sources.
So when a central bank that funds all the countries, raises interest rates investors herd to purchase their currency that raises the worth of that currency and, in turn, increases the economy.