Currency exchange rate is one of the most important means through which a country’s relative level of economic health is determined. If you are thinking of sending or receiving money from abroad, you need to keep an eye on the currency exchange rates.  The exchange rate is defined as “the value of one currency for the purpose of conversion to another”.

There are several factors behind exchange rate movements and it is useful to have a basic understanding of how these affect one country’s trading relationship with other countries. A higher currency makes a country’s exports more expensive and imports cheaper in foreign markets. A lower currency makes a country’s exports cheaper and its imports more expensive in foreign markets.
In this article, we are going to tell you about the main reasons that cause variations and fluctuations in exchange rates.

Inflation rate:

Changes in inflation cause changes in currency exchange rates. As a general rule, a country with a consistently lower inflation rate exhibits a growing currency value, as its purchasing power increases relative to other currencies.

Interest rates:

Changes in interest rate affect currency value and dollar exchange rate. A rise in interest rates in a country can offer investors a higher rate of return than other countries. As a result, the currency can appreciate relative to other countries.

Current-Account Deficits:

A country’s current account reflects its balance of trade and earnings on foreign investment. A deficit in the current account shows the country is spending more on foreign trade than it is earning, and that it is borrowing capital from foreign sources to make up the deficit. To make up this deficit, countries may borrow capital from other external sources, which will, in turn, help make the domestic currency depreciate.

Government Debt:

Government debt (also known as public interest, national debt, and sovereign debt) is the debt owed by a central government. Countries with high amounts of debt are less attractive to foreign investors due to the chance of default as well as possible high inflation rates. This can decrease the currency’s value.

Economic growth/recession:

If a country’s economy falls into a recession, its interest rates will be dropped, hindering its chances of acquiring foreign capital. Moreover, inflation is likely to fall in a recession; Lower inflation will help the country become more competitive and this may increase demand for the currency causing it to rise.

 

All of these factors determine the currency exchange rate fluctuations. If you send or receive money frequently, being up-to-date on these factors will help you better evaluate the best time for international money transfer.

Hafez Currency Exchange gives the best currency exchange rate for your money to transfer.  If you have any questions, please do not hesitate to contact us.