Factors Affecting Exchange Rates

The key factor which decides the profit of foreign currency conversion trades is the exchange rates that prevail. A slight change or waver in the exchange rates can drastically affect the whole industry and it can be disastrous if not carefully monitored. The values of currencies often change every second and there are many reasons as to why the currency rates fluctuate. The main reason for the fluctuation is that currency is associated with individual nations and the happenings over there can have a great impact on the values of its currency.

The first and foremost factor that affects the currency rate is the economic status of the country. The revenues of the government of a country can give deeper ideas about the strength of its currency. If the country has larger shares of revenues then its currency will be more stable in the foreign exchange. The price of the currency can drastically go down if the country is suffering from inflation.

Foreign exchange of goods is another important thing to be considered. Since different countries have different currencies. The trading will determine the strength of the currency. If a country like the United States buys something from a country like India then they will be paying in US dollars which have more value than the Indian Rupee. This will strengthen Indian economy and will give more value to the currency of India. Trading between nations can come to s standstill at certain times due to spread of deadly diseases, natural calamities etc. These kinds of situations can strongly affect the foreign exchange rates.

The politics in a country also affects the values of its currency. If the nation has a stable political outlook then its currency values will be on a high level and if it is in chaos, the values naturally drop down.