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Exchange Rate Determination

Every country in the world has its own currency. In the earlier period, it was replaced with the generic equivalent – gold. It was believed that the richer the country, the more gold in its treasury. Gold domination period left far behind. Now the standard of all transactions is the US dollar. All international relations are built on the dollar system.

Exchange rates are subject to constant change. They depend on the state issuer and the world economy.

Currency is an exchange good presented at the international currency market. Therefore, it applies the laws of supply and demand. In order to make forecasts about the fluctuation of a currency, it is necessary to pay attention to the factors that influence the formation of its supply and demand.

The main difference between the foreign exchange market and other types of markets is the lack of a single tender. There is not sale here, but the exchange of one currency for another. Moreover, the fall or the growth of the exchange rate occurs in relation to other types of currencies.

The exchange rate is determined by trade balance of the country that issued the currency; investment decisions for the future; the political situation in the country issuing the currency; the level of confidence of the citizens and foreign investors.

All the above-mentioned factors act simultaneously. Their strength of influence is not constant, it can vary. Accordingly, the direction of movement of the exchange rate is changing. In addition to these factors, the exchange rate is determined by other phenomena, such as natural disasters.

The receipt of foreign currency into the country directly depends on the performance of companies that export their products and services to the world market. Exporters buy the country’s currency to cover their production costs. Thus, there is a demand for the local currency. Accordingly, the greater the volume of exports in the country is, the higher the local currency and vice versa.

Companies that import form the proposal of the local currency. Therefore, the more imports, the greater the supply of local currency.

Confidence in the currency determines its choice for the conclusion of major transactions in the future, and at the current moment. To a large extent it depends on the stability of the economy, emitting currency. The list of the most reliable currencies include: US dollar, yen, Swiss franc, euro and pound sterling.

Thus, there is a connection between the global economy and the exchange rate. All political and economic events directly affect the dynamics of currency prices.

Every country in the world has its own currency. In the earlier period, it was replaced with the generic equivalent – gold. It was believed that the richer the country, the more gold in its treasury. Gold domination period left far behind. Now the standard of all transactions is the US dollar. All international relations are built on the dollar system.

Assignment ID
100000948
Type
CREATED ON
30 July 2016
COMPLETED ON
2 August 2016
Price
$20
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30 July 2016
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30 July 2016
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30 July 2016
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30 July 2016
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2 August 2016
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