The foreign exchange rate or the forex rate is one of the most vital means thru which a country’s relative level of fiscal health is determined. A country’s forex rate offers a window to its financial stability, which is why it is constantly observed and analyzed. If you are planning to send or receive money from abroad, you need to keep a keen eye on the money exchange rates.
The forex rate is explained as “the rate at which one country’s currency may be converted into another.”
It may vary day-to-day with the fluctuating market forces of supply and demand of currencies from one nation to the other. Because of these reasons; when transferring or receiving money internationally, it is significant to understand what determines the forex rates.
So here is a very quick peek into the most important factors affecting the forex rate…Check it out and be a pro in estimating the forex rate like never before…
What are the ‘10’ factors that directly affect the currency exchange rates?
- Inflation rate: Variations in market inflation cause variations in currency exchange rates
- Interest rate: Deviations in interest rate affect currency value and dollar conversion rate.
- Recession: When a country experiences a recession, interest rates are probable to fall, decreasing its chances to obtain foreign capital. Thus, its currency weakens, lowering the forex rate.
- Government debt: A country with government debt is less expected to acquire foreign capital, leading to inflation, finally affecting the currency exchange rate
- Terms of trade: If the terms of trade are positive, then it will have a positive effect on the exchange rate and vice versa
- Political stability: If the country’s political status is stable, then investors will invest more and finally affecting the foreign exchange rate of the country
- Performance of political party: This is also important in attracting investors to the country and making an impact on the exchange rate.
- Economic performance: A good growth in GDP increases the value of the currency, leading to better exchange rates and vice versa
- Speculation: If a country’s currency value is expected to rise, investors will demand more of that currency. As a result, the value of the currency will rise and create an impact on the exchange rate.
- Country’s current account/ balance of payments: A country’s current account echoes the balance of trade and earnings on foreign investment. Balance of payments alters the exchange rate of its local currency.
All these factors control the foreign exchange rate variations. If you send or receive money regularly, being up to date on these factors will assist you to better evaluate the optimal time for international money transfer. To avoid any possible falls in currency exchange rates, opt for a locked-in exchange rate facility, which will guarantee that your money is exchanged at the same rate regardless of any factors that influence an unfavorable fluctuation.
Now, keeping all these in mind, analyze the forex rates prior to your forex transactions and remit money abroad or exchange your currency at the right time, and get the best forex deal ever!!!