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Foreign Exchange Rates

Written by ForexCult Team
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Foreign Exchange Rates In the following article, I would like to tell you a little about foreign exchange rates and the actual forces behind them as well. When you take into consideration the factors that are known as interest rates as well as inflation, you will find that the foreign exchange rates known to be one of the top determinants when it comes to a individual country’s relative level based on economic health. It is known that the foreign exchange rates play a major role in the actual level of a country’s trade and that is known to be critical in just about every free market economy that is located in the world today. Based on the information that I just gave you, that is the number one reason that the foreign exchange rates are among the rates that are most watched and also among the rates that are most analyzed as well as economic measures that are governmentally manipulated as well. However, you will find that the foreign exchange rates are also vital on a much smaller scale also because of the fact that they have an impact on the actual real return of an individual investor’s portfolio. In the next paragraph, we are going to take a look at the actual forces that are major and that are behind the movements of the foreign exchange rates. Foreign Exchange Rates and the Forces Before we actually take a look at the forces that I am about to mention, lets take the time to sketch out just how the foreign exchange rates movements actually affect a nation as a whole, trading relationships with other different nations. When you have a higher currency, it actually makes a country’s exports to become more expensive and the exports become less expensive in the foreign exchange markets. When you have a lower currency it tends to make the individual country’s exports become cheaper and the imports actually become more expensive when it comes to the foreign exchange markets. When you have a higher foreign exchange rates, you can expect that the country’s actual balance of trade will become lower which in turn a lower foreign exchange rates would make it actually increase. Now let’s take a look at the determinants that are behind the foreign exchange rates. There are actually numerous amounts of factors that can actually determine the exchange rates and basically all of them are now related to the actual relationship of trading that takes place between two different countries. It is important that you remember that the exchange rates are known to be relative and that they are also expressed mainly as a comparison of the two different currencies of two different countries. The first determinant is the differentials that take place in inflation. When you have a country that has a lower inflation rate you will notice that there is a currency rate increase in value. The second determinant is the differentials that are in the interest rates. You must always remember that the interest rates as well as the inflation and also the exchange rates are tightly correlated. When you have a higher interest rate, you will see that it will actually attract the foreign capital and in return will cause the exchange rate to actually rise. Another determinant that you may be interested in is the current account deficits. When a country has a deficit in their account that means that they are spending more on the foreign trade than what they are making on it. Foreign Exchange Rates Overall Now that you have learned a couple of new things about the foreign exchange rates, I think that it is very important that you take the time to site down and think about it a little more. I know that the information that I have provided you with isn’t the best but it is an overview of what you have to look forward to. If you think that you want to know more about the rates then you should get online and do a little research on your own there is no one holding you back and there are many resources out there that will entitled you to learn more a more about the rates. Basically all you have to do is what to learn about something and the information is there. You should take the information and take down notes that way you know that you have nothing to worry about when it comes time to trade.