Foreign-exchange rate, currency rate, Forex or FX rate is the rate of exchange of one currency with another. It is an exchange standard as per which different currencies are matched and the value of one currency is calculated in equivalent amount of the other currency. In simpler words exchange rate is the sum of one currency which is requisite to buy another currency in a paired currency exchange.
While trading domestically the currency rates do not come into play. However while shopping internationally or investing in the Foreign currencies, knowing about the world currency rates and factors affecting them becomes significant.
The Foreign-Exchange market runs entirely on conjecture and assumption. It depends vastly on the global currency rates and the currency trade depends largely on the growth-rate trends of the currency. Growth rates are tools to predict the feasible future-value of any currency. The world currency rates are subject to regular change. The Foreign Exchange market works 24 hours-a-day, five days a week to cope with the differences in global time zones. Insuring higher profit requires careful observation of the change-trends in the currency rates.
The currency conversion rates are affected by several economic as well as political factors. The decrease or increase in the value of the currency depends on the following factors-
The currency value of any country is directly proportional to the government's budget. If the income of the country is higher than it's expenditures, it means it has a surplus budget. In case a country has a surplus budget its currency rate increases whereas if the country is in debt the currency value decreases.
Vigorous economic growth
There are various standards to measure the development of a country such as FDP, GDP, etc. When the country scores high on these standards it is economically strong. And when the country is economically strong its currency value increases.
Trade levels of a country
The Foreign exchange rate of a country also increases if the country has a trade surplus, i.e., its exports are more than its imports. A trade deficit affects the currency adversely.
Inflation tends to reduce the purchasing power of people. The reduced purchasing power or consumer capacity also leads to a decline in the currency value.
A countryâ€™s foreign exchange rate also rises if the central/reserve bank of the country announces an interest hike. This gives you a chance to earn profit from your currencyâ€™s capital appreciation.
The political stability of a country is another important factor. A country's policies affect its relationship with other countries. Hence, political insecurity affects the integrity of the country in international market, lowering its Forex value.
If the number of investors investing in a particular currency is very high, its demand increases, which results in an increase in the currency value. Contrary to this when a large number of people sell a particular currency itâ€™s value declines.
Forex trading can prove financially rewarding if all the stakes are considered and the investments are made skillfully. You can trade using the internet with online forex investment solution/broker. Your investments can return over 500% profit on your initial investment in a matter of few months.