Foreign Exchange rate is one of the most important factors which is connected with our country’s economic growth, and its stability determines the economic health. The foreign exchange rate provides a window to its economic condition. If you are thinking about how to transfer money online to France, Australia, USA or any other country or receiving money from overseas, you need to check current currency exchange rate in international market against converting currency. The exchange rate means the value of the currency of one country against the currency of the country. It may change daily with the changing market forces of supply and demand of currency. So this is important to check the current rate of currency exchange.
Inflation Rate- Inflation is the leading cause of changes the currency rate. If the inflation rate is lower than its appreciation value of its currency is high. It affects the country’s growth like; if the price of goods and services increase at a slower rate than the inflation is low.
Interest Rate- Interest rates affect currency value and dollar exchange rate. The FX rate, interest rate, and inflation are connected to each other. Increase in interest rate is profit for country currency because higher interest rates to lenders attract the more foreign capital, which is the reason for exchange rate and it is beneficial for our country growth, and it maintains testability for our economic growth.
The balance of Payments- A country’s current account balance reflects trade earnings and its investment in the account there is all the detail have mentioned like; some transactions including exports imports debt, and many other things have mentioned in the account details. A deficit balance of a current account which shows spending more of its currency on importing products and the earnings of sale is what causes depreciation, and the remaining balance fluctuates exchange rate of its domestic currency. So, it is important that the country account balance does not come in the deficit which is most affected of country’s growth.
Government Debts- Government debt is public debt or national debt which is owned by the central government. It is useful when a decrease in the value of its exchange rate will follow. The Foreign investor will sell their bonds in the open market to predict the government debt for a certain country. A government is less likely acquire foreign capital and leading to inflation.
Terms of Trade- It is related to the ratio of export prices to import prices. A country has improved his terms of trade like; if the export prices rise at a greater rate than its imports prices. This results in higher revenue, which causes a higher demand of country currency and it also, increase the value country’s currency. The results come in an appreciation of exchange rate. It helps to improve the country’s growth and its income.
Political stability and performance- A country with less political turmoil is more attractive to foreign investors. If the foreign capital increases that it is good for domestic currency. The political state and economic performance can affect its currency strength. A political confusion may see depreciation in the exchange rate.
Recession- When a country experiences recession, its interest rates are likely to fall, decreasing to acquire foreign capital than the currency weakens comparison that of other countries lowering the exchange rate which is a huge loss of country and its growth also affected by the recession.
Speculation- If the currency value is rise than investor will demand more of that currency to earn the more profit in future. The value of currency rise due to demand with this increase in value come a rise in the exchange rate.