Factors That Influence Currency Exchange Rates
Currency exchange rates are dynamic and fluctuate over time, however, they it is vital to find the best currency rates to make the most of a currency exchange. Thus, this article looks at the factors that influence currency exchange rates.
Most people know that live forex rates in India and across the world fluctuate on a daily basis, based on several contributing factors. When performing currency exchange, one needs to check these live forex rates to know the current forex rates being offered by banks and forex companies and ensure they find the best currency exchange rates for the most benefit.
It is important to perform a currency exchange when the live forex rates in India are favourable. Most people are well aware of the benefits of getting currency exchanged at the best forex rates. Live or Today forex rates in India, displayed on the portals of forex companies, must be checked to track the current forex rates for their currency of choice, to ensure one receives the most for their money’s worth. Here are few factors that influence the live forex rates,
Factors that influence currency exchange rates -
Currency rates are constantly changing, owing to several factors, such as,
It is a general thumb rule that those countries with lower inflation rates, such as Norway, Switzerland, and Germany, have currencies that are valued higher. This is because the currency’s purchasing power increases relative to other currencies. Similarly, countries witnessing higher inflation generally see currency depreciation relative to the currencies of countries they trade with.
Higher interest rates generally correlate with higher-valued currencies. High interest rates in a country indicate that investors can obtain better returns on their investment in that country as compared to a country with lower interest rates. Higher interest rates attract capital from overseas, resulting in an increase in demand for one currency relative to the other and thus causing the exchange rate to also increase.
3. Current Account Deficits
The current account of a country is the balance of trade between it and its trading partners and reflects all payments between the countries for goods and services as well as interest and dividends. A current account deficit indicates that the country is spending more on goods through foreign trade and imports than it is earning through exports. Therefore, the country will have to borrow from other countries to make up for the deficit and this demand for foreign currency lowers the exchange rate of that country.
Countries that have a high public debt level tend to have a currency that is valued lower. A country with a high deficit resulting from having to pay for public projects or government spending may need to print more money to pay off the debt, causing a rise in inflation, and therefore, the debt will be paid off with even cheaper real currency notes in the future.
The phrase “terms of trade” refers to the difference in the price between a country’s exports and its imports. A positive ‘terms of trade’ for a country means that the country gets higher prices for its exports than imports, and this results in a higher-valued currency.
6. Economic Performance and Political Stability
Stable countries that have strong economic performance attract more investors than countries with political and economic uncertainty.
The above-mentioned factors have a great influence on the current forex rates in India and globally. Thus, individuals seeking to exchange currency can find the live currency rates online through trusted currency exchange websites. Many sites also allow guest to set alerts to track the rise or fall in the live forex rates for a particular currency.
Finding the best currency rate is vital to get the most from one’s money in foreign currency, thus, a bit of research and observation of the live forex rates can prove highly beneficial.
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