Homiya

Educational: Determination of Exchange Rates Changing Factors

FX:EURUSD   Euro Fx/U.S. Dollar
110 1 2
Higher the interest rates more the savers more the demand for that currency.
Lower the interest rates more the borrowers boost short term economy performance. Bond Yields get lower


Higher the inflation higher the prices lower the purchasing power. A bit of inflation can boost the economy
Lower the inflation lower the prices higher the purchasing power. Gov             increasing the money supply in the economy(debasing). Thus no of notes and coins will be higher the lower the currency value it gets.. Inflation is simply a tax on people so that gov             get richer..

Watch the video below to understand what is inflation?

Current Account Deficit- Gov             . should supply more domestic currency to buy foreign currency causing a depreciation in currency and a rise in Gov             Debt

Current Account Surplus- Gov             can give the excess money in the system by loaning to foreign countries. In this process aggregate demand in the economy shifts. Through that shift gov             can control inflation too.

If more workers outside country send money to their homes, Then the domestic currency appreciates

People can speculate the current market and make trades. Making trades change the exchange rates

If a country's employment sector and business sector good a rise in the incomes levels may promote to buy more foreign goods and services. This causes country's currency to depreciate overtime

Elections, Referendums. Global Summits, Meetings, Speeches, Testimonies, Economic Performances, Natural disasters can have a strong effect on exchange rates

If a country want to promote their exports .. They would make the domestic currency to depreciate by demanding foreign currency more.

Over appreciation of a currency is not too good because it would result to promote more imports than Exports
More the exports a country more the remittance it gets

Governments maintain Fiscal, Monetary, Interest Rates, and other Policies
Government raise income through taxation..
If they lower the taxes Disposable income rises. as a result aggregate demand rises.. as demand rises prices rises causing inflation ..
If they increase taxes vice versa

If they increase money supply in the system through printing money currency will be debased causing inflation .
Money supply is necessary to maintain a economy. If money supply is cut then there will be a great depression. Causing the lower supply of money to increase the value of currency. Eventually economy will be derailed


Through open market operations they can sell or buy bonds to meet the required aggregate demand in the economy. By means of this Gov             . can manipulate the money supply

As a result of these actions the exchange rates will fluctuate.

If a country has a huge government debt then investors will be reluctant to invest in the country cause overtime the value of the notes and coins of the currency will be hyper inflated and the gov             . will adopt a new currency resulting the invested money to be vanished into thin air..

Other fundamental Factors- Employment and Wages Reports, Retails Sales, Economic Surveys and Business Confidence, Trade Balances, GDP, Capital Expenditure Accounts, Inventories, Manufacturing Productions. Cost of raw materials, labor, Housing Starts, Car Sales, etc..

Few videos that I used to understand these factors..!!!

https://www.youtube.com/watch?v=UMAELCrJxt0

https://www.youtube.com/watch?v=HGPBTEugNnI

https://www.youtube.com/watch?v=oDDbVC3Hekc

https://www.youtube.com/watch?v=b_Fm8sW_g98

Combined Technical, Fundamental and sentimetal views makes the trades more successful.. This is my effort to understand how fundamentals work...

If there is any fault in the writings above please feel free to correct the errors by leaving a comment.. Thanks.. GL
Homiya
9 months ago
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