A Brief Guide to Foreign Exchange Tradingby William Stinner Article Writer
Foreign exchange trading is nothing but dealing in foreign exchange with the speculative motive to earn profit from the change of rate of the currency. So how does this speculation work? Basically the intention of the customers is to buy the currency at a lower rate and then sell it at a later stage when the prices of the currency appreciates .But the speculation doesn’t always holds good because the market condition are not always same, there are abundance of reasons on the basis of which the foreign exchange currency rate fluctuate which are as follows:
Factors affecting forex fluctuation are as follows:
The first factor which accounts for the change in the forex rate is the inflation. Lower inflation rate will see appreciation in the value of currency whereas higher inflation rate will see depress in the value of the currency
Another major factor affecting currency exchange rate is the current and capital account status and its balance of payment which include all the export and import transactions of the country. A deficit in current account will depreciate the currency value and value will be appreciated when the account has surplus.
Political stability of the country is also another major concern for currency fluctuation
If there is turmoil in the economy, there is a loss of confidence in the currency, which would lead to deflation of the currency value, whereas good political conditions, stability in the political system will lead to appreciation of the currency of that economy
Recession in the economy is also another major concern for currency fluctuation. Deflation is caused by the fall in demand and it leads to hoarding of money, the spending power of individuals is reduced. The money circulation in the economy becomes slow, so all these reasons have a negative impact on the economy, which leads to fall in currency rate.
Banking operations of the economy affects the forex fluctuations. The banking rules regulations, norms, policies influence the demand and supply of the forex in the economy and as a result the currency rates fluctuates.
Apart from the banking policy and operations, monetary policy of the economy has a key role in influencing the forex exchange rate. The inflation and deflation of the home country currency is further interlinked to exchange rate in another country.
International transactions between the countries have an impact. The export and import transactions between two countries also change the rate of exchange
Created on Nov 15th 2018 01:14. Viewed 317 times.