What Determines the Value of a Country’s Currency?

WHAT DETERMINES THE Value of a Country's S CURRENCY Factor #1 CURRENCY EXCHANGE After the gold standard fell, the floating currency exchange became the standard for valuing a currency. Sometime really really back in time! Sometime back in time! Currency exchange provides a relative measure for understanding the value of a currency by comparing it to the currency of another country, and against the world standard, the US Dollar. Every day a nation's currency might be more BUY or less valuable than the day before as determined by buyers' activity. Day before Yesterday Yesterday Today Exchange rates are among the most watched, analyzed and government-manipulated ES conomic measures. Factor #2 SUPPLY & DEMAND OF A CURRENCY Thevalue of a currency is decreased by greater supply. BUY USD 24 The value of a currency is increased by greater demand (velocity) for that currency. Velocity/Demand means the amount and number of times a particular country's currency notes circulate within a set $4 period of time. The faster a currency circulates, the more valuable it is perceived to be due to verified consumer confidence. DEMAND FOR GOODS, SERVICES AND INVESTMENTS PRICED IN THAT CURRENCY >> If an investor wants If expenditures, To get American dollars, to buy American goods, by non-Americans, the foreign buyer will have to supply the market with another currency then hewill need on these goods rise, then American dollars demand for the to do so. American dollar will rise. in the process. A higher valued currency makes a country's exports more expensive and imports cheaper in foreign markets; and vice versa. HOW SPECULATORS IMPACT SUPPLY AND DEMAND PREDICTION ACTION IMPACT ON MARKET BUY DEMAND CURRENCY VALUE SELL >> SUPPLY T CURRENCY VALUE HOW CENTRAL BANKS IMPACT SUPPLY AND DEMAND Central banks may buy up a foreign BUY USD currency to affect the exchange rate. Central banks may increase the money supply in their own currency. Factor #3 EXCHANGE RATES & TRADING RELATIONSHIPS Exchange rate is nothing else but relative value of a currency. Many factors determine exchange rates and are all based on the trading relationship between two countries. Political Stability Inflation Interest Current-Account Public Terms of Rates Deficits Debt Trade EXCHANGE RATE INCREASES WHEN... FACTOR REASON Inflation Purchasing Power Interest Rates Foreign Capital Investment Current-Account Deficits Demand for Foreign Currency Public Debt Foreign Investors Terms of Trade Demand for Country's Currency Political Stability Confidence in Country's Currency T TREASURY VAULTE "Delivering aurencies & commodities from our vault to yours Sources: http://economics.about.com/od/purchasingpowerparity/p/exchange_rate.htm http://www.forbes.com/2006/08/23/forex-trading-education-in_swh_0823investools_inl.html http://www.dummies.com/how-to/content/what-affects-currency-rates.html Standard- ....... .........* %24 %24