Factors Affecting Currency Value/Exchange
Currency exchange rates or so-called exchange rates become the standard in currency exchange transactions between countries. Currency exchange rates are considered by many parties, including the forex trading field. If industry players need currency exchange rates for the purpose of buying and selling goods from other countries, then forex market players take advantage of the difference in the value of these currencies to earn money. Here are some factors that can affect the movement of currency exchange rates between two countries:
Differences in Inflation Rates Between Two Countries
A low inflation rate will have a stronger exchange rate than high inflation. Purchasing power will be relatively larger. Some countries with low inflation rates are Japan, Germany, Switzerland, the United States and Canada.
Differences in Interest Rates Between Two Countries
Because interest rates, inflation, and exchange rates are closely related, the central bank's policy regarding interest rates can provide differences in the value of different currencies. High interest rates will cause the demand for currency to increase. High inflation will drive investors out and cause the central bank to raise interest rates.
Balance of trade
The balance of trade can be defined as all payments from the sale and purchase of goods and services. The trade balance of a country is said to be in deficit if the country pays more to the trading partner country than the payment received by the partner country.
Public Debt
The domestic budget balance is used to finance projects for the public and government interests. If the budget is in deficit, the public debt will swell. The high public debt will cause inflation to rise. The budget deficit can be covered by selling government bonds or printing money.
The situation can be worse if the debt causes a default (default) so that the debt rating drops. High public debt will obviously tend to weaken the country's currency exchange rate.
Political and Economic Stability
Investors will certainly reach countries with good economic performance and stable political conditions. Countries with unstable political conditions will tend to be at high risk as a place to invest. Political conditions will have an impact on economic performance and investor confidence, which in turn will affect the exchange rate of the country's currency.
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