Foreign currency exchange is a huge global financial market. Foreign currency exchange facilitates international trade and enables people to access foreign currency for travel. With the advent of the internet and ecommerce, internet trade has significantly increasing the need for foreign currency exchange. Foreign exchange rates determine how much one currency exchanges for another currency. A currency converter calculator helps in calculating the applying rates and the equivalent amounts of exchange currencies. There are many factors that determine the applying foreign exchange rates. These factors are provided below.
The trade that exists between two nations affects the foreign exchange rates between the two nations’ currencies. If one country imports more than export to the same nation, the currency of the importing nation will lose value in relation to the net exporting nation as importers will demand more of the other countries currency than they get from their exports. A currency converter calculator can help calculate the applying cross currency rate between two country currencies.
Balance of Payment
A countries balance of payment also determines how the country’s currency exchanges with other currencies in the world. The balance of payment is the difference between a country’s imports and exports. If a country imports more than it exports, it will have a negative balance of payment. This means that the country demands more foreign currency from other nations as it gets less forex from its exports as compared to its import demands. On the other hand, a positive balance of payment is when a country’s exports outweigh its imports in terms of currency. A country with a negative balance of payment will have unfavorable foreign exchange rates applying on the as currency converter calculator compared to one with a positive one.
The amount of money being repatriated back home by the citizens living in the diaspora also affects the foreign exchange rates that apply to the local currency. If the amount being repatriated is significant, it will increase the supply of foreign currency in the country and thereby improve the exchange rates that are used on the currency converter calculator.
The actual or perceived economic stability of a country affects the foreign exchange rates that apply to the local currency. Investors are willing to invest in stable economies and thereby increasing the demand of the local unit. On the other hand, when an economy becomes destabilized for whatever reason, multinationals divest to other countries and thereby adversely affecting the applying foreign exchange rates.
Economic partnerships such as the European Union have positively affected the applying foreign exchange rates and dominance of such a currency in the world currency exchange market. Such partnerships give an economic region stability and economic muscle to gain dominance over other county currencies.
Sanctions, War and other Disasters
Other factors that can adversely affect the foreign exchange rates that apply to a nation are economic sanctions, wars and natural disasters. Economic sanctions limit the amount of international trade that a country has with other countries and thus lowering the local currency demand. Disasters and wars that affect the economy of a nation will in turn affect the exchange rate of the local currency to other currencies.