Factors affecting the price of the currency (6 key factors)

The most important thing to remember about the factors affecting the exchange rate is what may affect the supply or demand a particular currency in the market. For example if there is a growing demand for U.S. exports would lead to a rise in the value of the dollar compared with other currencies so as to Aazdiad the demand for dollars to pay for imports. On the other hand, the uncertainty about the economy may lead traders to abandon the dollar leading to a decline in the value of the dollar against other currencies. Here are some of the key economic factors that affect the currency exchange rates and currency on each dealer to have knowledge.

Interest rate when interest rates are high in a particular country compared to other countries, this will attract traders to invest their money in this country. Which in turn leads to higher exchange rate because there is a great demand for the local currency. In fact, traders expectations that the interest rate increase will affect state in the direction of currency exchange rates.

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Trade balance: When the demand for a particular commodity will increase demand also on the currency in order to pay exports. This leads to increase in the exchange rate, on the other hand when the country's imports greater than exports will be reduced exchange rate because there is a huge demand for foreign currencies paid in local currency.

Public debt: Governments in general industrial sector funding projects by borrowing money, raising the amount of public debt. This may lead to a decline in the value of currency exchange rates because there is less demand for the local currency in order to preserve the investors to put their money in countries suffering from high debt value, and for fear of the inability of the state to pay its debts.

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Political developments: As currency exchange rates reflect the state's economy is the bad economic news may cause a decline in value of the exchange rate, while good news leads to a rally. For example, if it was announced that the GDP will grow will lead to an increase in investment which creates a demand for the local currency and raise the price of the exchange.

Inflation: inflation rate does not reflect price changes with time and as it also reflects the purchasing value of the currency or the amount of goods and services which they can buy them. Also linked to inflation and interest rate because the central banks reduce inflation by raising interest rates and thus reduce the amount of currency circulating in the economy.

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