Currency Value – A List of Determinants

This article provides a list of the most important factors which determine a country’s currency value. It is these factors which determine the perception of a potential purchaser of a country’s currency. And it is the potential currency purchaser which ultimately determines the demand and subsequent value for that currency. Here you will find a discussion about these factors.

The information presented here is designed for the Forex/currency trader. This information is also useful to anyone who would like to develop an understanding of factors which determine currency value. For the currency trader,Guest Posting this understanding is needed in order to develop a currency trend analysis for a particular country. Developing accurate currency trends is the key to successful Forex trading.

What determines a country’s currency value really comes down to supply and demand of that currency. If a particular country’s currency is in high demand by purchasers such as travelers, governments, and investors, this will increase the value of the country’s currency. The factors that follow may have a positive or negative affect on the demand for a particular currency. Lets take a look at these factors.

1) Printing of Currency:
If a country prints an excessive amount of currency, more then what it normally would, this can decrease it’s currency value. Any time you have more of anything, this can result in a decrease in it’s value. This is true whether you are talking about currency or commodities such as iron ore, crude oil, coal, gold, silver and platinum. A large amount of currency in circulation can lower the value of a currency. A small amount of currency in circulation can result in the value of the currency increasing.

2) Current State of the Economy:
If a country’s economy is not doing well, this can decrease the demand for that country’s currency. Specifically, here we are talking about the degree of unemployment, degree of consumer spending, and extent of business expansion that is taking place in a country. High unemployment, decrease consumer spending, with a decrease in business expansion, means a poor economy and a decrease in currency value.

The potential for economic growth in a country should also be looked at. If the potential is strong, then it’s currency value would expect to increase. Also, if a country produces products that other countries want to buy, this can increase the value of that country’s currency.

3) Prices of Foreign Goods:
Related to the economy, is the prices of foreign goods. If a foreign company sells goods in a country which are cheaper then comparable products produced in that country, this can hurt the economy of that country. A poor economy results in a decrease in demand for that country’s currency, which lowers it’s value.

4) Political Conditions of a Country:
To what degree does political corruption exist within a country? To what degree do political affairs have on the economy of that country? A country which is known to have corrupt politicians, can result in a lowering of currency value.

5) How Secretive is a Country:
A country which operates at a high level of secrecy, at least as observed by those outside the country, can result in a lowering of the value of their currency. Another words, if not much is known about a country due to a restriction of media expression within that country, this can lower the value of it’s currency.

6) National Debt of a Country:
To what degree are politicians addressing a national debt problem? Are politicians causing an increase in the national debt? In a democratic society, national debt must be paid by the taxpayer. If taxes increase, this results in a lowering of the purchasing capability of society, which results in a deleterious affect on the economy. In this case, currency value will decrease.

7) President’s Popularity:
If a president is popular, this can increase the demand for a currency. If the presidents popularity is dropping, due to unpopular government policies, this may result in a decrease in demand for a currency and a subsequent lowering of it’s value.

8) War and Terrorists Attacks:
A terrorists attack can increase the probability of a war. A war or the strong potential for a war can decrease the demand for a currency, simply because a war drains the economy. Wars are expensive and must be paid by the taxpayer. A war can increase a country’s federal deficit. You simply can not have a growing economy during war time. So war lowers the value of a currency.

9) Government Growth:
Is government growing and expanding to much? New growth by developing departments, and creating unnecessary programs, all costs money. Again, the taxpayer will need to pay for the new growth, which for the long run has a negative affect on the economy. Excess government growth can lower currency value.

10) Tax Cuts for the Consumer:
Tax cuts can stimulate the economy, as long as the consumer spends the extra money he or she may have. But also, tax cuts which are to large can result in high demand for products, which may raise prices, which can lead to inflation and the desire to purchase cheaper foreign products. But in general, tax cuts historically have been good for the economy, which can result in an increase demand for that country’s currency.

11) Interest Rates:
A higher interest rate means a higher demand for a currency. Foreign investors in a currency prefer a higher interest. It is the same principle when you shop around for the highest interest rate when putting money into a savings account. While a lower interest rate improves the economy, currency investors want the money that they purchased to have a high rate of return while holding that currency. This increase in demand for a currency results in an increase in it’s value.

12) Housing Market:
If there is a slowing of a housing market, this means the sellers asking price will be less, and with the realization that a persons home is worth less, this results in less consumer spending. This has a negative affect on the economy. Again, poor economic conditions result in a lower demand for the currency, thereby lowering it’s value.

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Why Currency Trading is a Wise Investor’s Game

Currency trading like stock trading is a speculation business. If you can study and predict currency trends well,Guest Posting then you can make a lot of money through currency trading. Other terms that are used for currency trading are Forex, FX and foreign exchange. In currency trading, the trader buys a currency by selling another currency; so buying and selling occurs simultaneously. Currency trading is one of the biggest markets of equity trading. The lifeline of currency trading is currency trading news; one should be constantly watching the market to make profit and to avoid loss. Timing is another crucial aspect of currency trading. The trader should know when to buy and when to sell currencies and it is forex news that helps the trader in making well-informed currency trading decisions.

As compared to stock market, currency trading has relatively lesser regulations. When the trader invests in a particular currency, he or she hopes that the value of that particular currency will increase in the near future. On the other hand, the trader may also try to sell a particular currency when he or she feels that the selling currency has reached the peak and selling at that point will bring in good profit. Since buying and selling happens simultaneously, when the trader sells a currency to make profit, he will have to buy another currency and often the currency whose value is currently lower but that has a potential to increase is bought.

Like in stock trading, the trader should be highly disciplined while trading. When the value of a certain currency increases, the tendency is to wait for long. Waiting for too long can also be at times detrimental because currency market is a highly volatile market and hence highly unpredictable. So when a certain percentage of profit is attained, the trader should try to switch to other currencies that are becoming stronger.

To enter into currency trading one should understand global economics well. You should be able to make ‘currency sense’ out of various unconnected events of the world to the forex market. The world is shrinking fast and what happens in one corner of the world affects the other parts of the world more than ever before. This makes forex trading even more volatile. Therefore, it is not enough to pay attention to the local market but one should also keep a close watch on the global happenings and global currency market news.

If you are tired of the trading costs involved in stock trading, then currency trading is an ideal alternative. Currency trading involves lower trading costs. With the advent of the internet, real time online trading is possible and this has attracted thousands of investors. Moreover, now you can access forex news much faster than before using online sources. You can gain access to forex news instantly through a wide variety of regularly updating forex news websites.

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