What Influences Forex Price? Essay

812 Words Nov 1st, 2013 4 Pages
What influences FOREX Price?

Foreign exchange rates are both a market unto themselves and an influence on the fundamental situation of other markets. They reflect the strength or weakness of an economy and are a factor in it. This kind of duality can create a truly mind-spinning situation at times. There are a few things, however, which directly influence Forex prices.

Interest Rates:
Most people will think first of interest rates when the idea of evaluating one currency against another comes in to play. They are indeed a major part of the forex market equation. Interest rates on the one side determine the "yield" of a currency, while on the other side can be viewed as a barometer of the position of a country's economy (or of an
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More demand means higher values.Because of this influence, forex traders keep a keen eye on trade data. These figures, of course, are historical by the time the market sees them, meaning the trade transactions have already happened and their push or pull on a currency's value have taken place. What traders want to know, however, is if money is flowing in to or out of a country.

Capital Flows:
Capital flows are a parallel to trade. Rather than representing the value of goods and services being exchanged, they indicate the investment of capital in to a country. Investment works the same way as trade. A country receiving a lot of investment money is similar to a country selling a lot of goods on the trade market. It's currency is in demand.
What creates capital inflows? Higher relative real interest rates (rates adjusted for inflation) is one thing. Opportunities for investment profits in a country's stock market is another. Capital seeks returns. It will go where it thinks it is going to get the highest one for a given level of perceived risk.
Capital flows are seen in the balance of payments information released by the government. Traders look at it the same way they do the trade data. Is money coming in or going out of the economy?

Reserve Currency:
You may have heard that the US Dollar is a reserve currency, which means other country's keep a supply of Dollars on hand as a safety measure against adverse conditions. This helps provide demand for

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