Most people, sometimes even professionals, really don’t think about what can influence the foreign currency exchange rate. In actuality, there are really many more variables and influencing factors than could be listed and discussed. However, understanding the main ideas and considerations will make you much more aware of how the foreign currency exchange rate works.
Foreign currency exchange rate depends on economic factors
Ultimately, the foreign currency exchange rate will depend on a number of economic factors. For example, whether or not the country in question has a strong economy. Certainly, countries like the US, Great Britain, and Germany are known for their large and powerful economies, which should influence the rate at which dollars, pounds, and Euros trade. You will also see that countries with relatively weak economies like Mexico or even Zimbabwe have much different levels of foreign currency exchange rate. In other words, the strength of the local economy determines the exchange rate.
Foreign currency exchange depends on demand
As with any other product or service, the foreign currency exchange rate will depend on the demand and the supply of that particular money. Both of these factors also need to be considered. A very popular currency could ultimately be printed in such large quantities that the demand for it ends up dropping. That would cause the foreign currency exchange rate to drop, sometimes precipitously. In other cases, the actual lack of a supply can serve to drive up the value of the foreign currency exchange rate. It is really a bit of a balancing act.
Depends on how many people are trading the currency
How the currency itself will fluctuate can also be determined by the number of people who are trading and buying the currency. The foreign currency exchange rate has been known to be manipulated from time to time by a number of big traders working together. Fortunately, it is becoming much more difficult to pull off such a scheme today. Not to mention the fact that a lot of everyday folks are now going to exchanges in order to buy money for personal travel needs.
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