WHAT IS CURRENCY FLUCTUATION?
This is the tendency in which a nation’s currency value increases or decreases as compared to other nations’ currency. The changing value of currencies is constant. It is greatly affected by the changing trends of the demand and supply in the market. Although the underlying economy is highly expected to determine the level of a currency, it may occur in a different way in that; the economy’s luck can be determined by high currency movements.
IMPACTS OF CURRENCY ON THE ECONOMY
The following facets of economy are highly affected by a currency level
MERCHANDISE TRADE
It’s defined as an international trade of a nation. When a currency of a nation is weak, its exports are stimulated and this makes the price of its import even higher. This leads to an increased surplus. In international trade markets, a country’s export trade will always be competitive due to a fall in its own currency. On the other hand, when a currency is stable and strong, there is a fall in competitiveness of exports which reduces the price of imports. This might lead to higher expanding of trade deficit and it makes the currency weak.
CAPITAL FLOW A country which has a very strong government and economies and currencies that are stable tend to receive more foreign capital. This is because investors get attracted to stable currencies. There are two main types of current flows;
Foreign direct investments: it is also abbreviated as FDI. Here, capitalists from foreign countries take interests in available markets or they construct new facilities in other continents where they invest in overseas assets. FDI is a captious way of generating capital.
Foreign portfolio investment: here, capitalists from foreign countries invest in securities overseas.
INTEREST RATES
As said before, when most central banks are laying monetary policy, they at most consider the level of exchange rate. A nation whose currency is strong has a weak economy and if the monetary policy tends to be high, the rate of interest shoots up. At times, when a currency of a nation is very strong, extreme tightening of the policy may worsen the difficulty by attracting more capitalists from foreign countries who are in search of investments that are more profitable. This would further increase the domestic currency.
INFLATION
Countries which import goods and services at large tend to have their currency losing its value which can lead to inflation. When a currency of a country falls suddenly, it may lead to an increase in the price of imported goods and services since a fall in currency means an increase in importing price to get to the main point of starting
This is the tendency in which a nation’s currency value increases or decreases as compared to other nations’ currency. The changing value of currencies is constant. It is greatly affected by the changing trends of the demand and supply in the market. Although the underlying economy is highly expected to determine the level of a currency, it may occur in a different way in that; the economy’s luck can be determined by high currency movements.
IMPACTS OF CURRENCY ON THE ECONOMY
The following facets of economy are highly affected by a currency level
MERCHANDISE TRADE
It’s defined as an international trade of a nation. When a currency of a nation is weak, its exports are stimulated and this makes the price of its import even higher. This leads to an increased surplus. In international trade markets, a country’s export trade will always be competitive due to a fall in its own currency. On the other hand, when a currency is stable and strong, there is a fall in competitiveness of exports which reduces the price of imports. This might lead to higher expanding of trade deficit and it makes the currency weak.
CAPITAL FLOW A country which has a very strong government and economies and currencies that are stable tend to receive more foreign capital. This is because investors get attracted to stable currencies. There are two main types of current flows;
Foreign direct investments: it is also abbreviated as FDI. Here, capitalists from foreign countries take interests in available markets or they construct new facilities in other continents where they invest in overseas assets. FDI is a captious way of generating capital.
Foreign portfolio investment: here, capitalists from foreign countries invest in securities overseas.
INTEREST RATES
As said before, when most central banks are laying monetary policy, they at most consider the level of exchange rate. A nation whose currency is strong has a weak economy and if the monetary policy tends to be high, the rate of interest shoots up. At times, when a currency of a nation is very strong, extreme tightening of the policy may worsen the difficulty by attracting more capitalists from foreign countries who are in search of investments that are more profitable. This would further increase the domestic currency.
INFLATION
Countries which import goods and services at large tend to have their currency losing its value which can lead to inflation. When a currency of a country falls suddenly, it may lead to an increase in the price of imported goods and services since a fall in currency means an increase in importing price to get to the main point of starting