Currency Fluctuation means the change in the value of the currency, in the international market.
where the value of the currency is determined by the performance of the economic condition.
the higher the economic condition the greater the value of the currency increase and vise versa.
so, now we know the meaning of currency fluctuation let’s understand the Factors for Currency Fluctuation.
Factors For Currency Fluctuation:
- Monetary Policy
- Inflation Rates
- The Political and Economic Environment
- Import and Export
- Interest Rate
- Government Debt
- Capital Flow
The Monetary Policy is a set of rules set by the central bank of the country,
it states the value of the currency and it has control over the quality and
quantity of the new money flow in the market.
Inflation means a fall in the value of the currency, it happens because of the
money loses its value over time concluding decreasing in the value of goods and services.
The Political and Economic Environment:
The PEST analysis plays a huge factor for currency fluctuations,
(Political, Economic, Socio-cultural and Technological), where political
stands for an external relationship with a different country, and environmental
stands for the internal- economic growth of the country.
well, you may be wondering how tourism affects currency fluctuation,
that’s simple when tourist come to our country, the local vendors do not accept there
currency, so the tourist goes for the bank for exchange of currency, the higher the tourism,
the higher exchange, so directly affecting the increase in the value of the currency.
Import and Export:
One of the most important factors for currency fluctuation is import and export,
every time our country imports something from a different country the tax is paid on that import,
and vise versa. But the value of the currency increases when there is an increase in the export.
Interest rate is the magnet to attract foreign investment, People always expect
to earn more on their investment, compared to their country,
if we provided a higher rate of interest they usually tend to invest higher,
and the cost of investment is lower compared to other countries.
Indirectly it will not only increase the value of the currency but also increase FDI.
The meaning of government debt refers to the amount government has to pay,
it may be either the loan or the payable due on the forex trading, etc.
basically a bad reputation in the field of finance.
Cash\Capital Flow is a direct factor for currency fluctuations,
It stands for the investment received from the FDI, which will boost,
the value of the currency as well as improve the economic condition of the country.
By providing job opportunities and improving the relationship between 2 countries.
In summary, to conclude the topic “Factors for Currency Fluctuation” in brief,
we have understood that increasing the value of the currency is not only good for the country
but also attracts foreign direct investment.
how can we do that? , try to use products made n your country,
try to reduce the import of goods and services.
[ Read More: Is This the Right Time to Invest in Mutual Funds? ]
[ Read More: What Is FDI? And Its Benefits. ]