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What are the different factors that contribute to the changes in forex rates?

The forex exchange market is a global market where the trading of currencies is done all throughout the day and night. As an investor in this market, the rate of which these currencies are exchanged is very important. This is because the currency is used to determine the economic status or growth of that particular country, in comparison to other countries. As these features change, so does the rate of the currency.

This rate is normally monitored and constantly evaluated, as it is a key to determine the factor for the country’s economic stability. As mentioned previously, forex investors and those who frequently send foreign funds abroad would need to constantly screen the exchange rate so as to know the appropriate time to make a transfer or transactions.
Given below are some critical factors that play an important role in determining the rise and fall of the exchange rate. This will go a long way to help you understand the suitable time to transfer or receive funds:

Inflation rates in the market: The variations in the market inflation rates is one of the critical aspects affecting the exchange rate of the country.  Country’s that possess a low inflation rate normally have a stronger value of currency, as compared to countries that have a high inflation rate. However, this is only applicable if the other factors are held constant. If the inflation rate is low, goods and services tend to appreciate at a slow rate as compared to countries that have a high inflation rate. If the low inflation rates are maintained for a longer period of time, the value of the currency appreciates steadily.

Interest rate charges: Forex exchange rates, interest rates and rates of inflation are always interrelated while playing a big role in determining the stability of the market. Any changes in the interest rate will affect the value of the currency and in turn, the exchange rate. Any increase in the interest rate will increase the value of the forex currency. This normally occurs, when the borrowers are charged a higher interest and in turn, attracts a foreign capital. This causes the exchange rates to go up.

Debt accrued by the government: Any unpaid dues by the central government are always considered as a civic debt and furthermore a liability. The bigger the debt, the less likely the government will negotiate to get a better foreign capital. This in turn, results in the increased inflation in the country. When this occurs, investors tend to trade bonds when the debts are too high. Consequently, this will always lead to the fall in the value of the current exchange rate.

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