About Foreign Exchange Rates And Factors Affecting Value Of A Currency
09 Sep 2015 in Business
The Foreign exchange rate (FX exchange rate) between the two currencies is the rate on which we can exchange one currency into another. Take the example of USD. If you see that the USD is at 1.06, it means the exchange rate between USD and other currency AUD. Here 1 AUD will buy you $1.06 USD. It’s as easy as that.
How do Foreign Exchange Rates Impact the Economy?
The higher the value of the currency of a country, the more costly will be its goods and services to the people who are overseas and this way it is not beneficial to some businesses. This is one of the basic things you will learn at XFR Financial Ltd. The tourism in the country is much affected and the exporters because their selling price is higher than those overseas manufacturers.
Some useful Terms on Foreign Exchange Rates
Here are some useful terms explained related to Foreign Exchange rates-
Foreign currency trading– Foreign currency trading is the trading currency from one country against other at the changing foreign exchange rates.
Sell rate– This is the rate at which we sell a foreign currency in exchange to a local currency. For example if you are traveling to Canada you may want to exchange your currency with the Canadian dollar at the sell rate.
Buy rate– This is the rate at which we buy the foreign currency back from the travelers to exchange into the local currency. For example if you are traveling back from Canada, you would like to exchange the Canadian dollars back to the local currency Euros at the buy rate.
Benefits of Foreign Exchange Trading with XFR Financial Ltd
You can take a benefit of the Foreign exchange rates and can make a good amount of profits by trading intelligently with XFR Financial Ltd. The rates are not always constant and keep on fluctuation which can be the cause of speculations and predictions for going high or low. If you have a deep understanding of the market and a good experience in the field of FX trading, then you can make a good profit by speculating correctly and buying or selling a particular currency at a particular rate. But without experience and knowledge it can bring losses too if not done wisely.
What are the Factors which Affect the Value of a Currency?
Interest rates– The higher interest rates increase the demand of the currency in that country which increases the value of the currency. For lower rates there is lower currency value because less people are interested in buying the currency.
Inflation– With rise in inflation, the value of a currency goes down in a country and the low inflation helps you to buy more.
Economy’s strength– A country’s currency value and economical development are directly proportional to each other. If economy develops and businesses, employment and GDP are strong, then the currency demand goes up and hence the value of the currency goes up.
Government level of debt– A currency value goes down if the debt of the government is high.