What Influences the Exchange Rate?
Some factors, such as interest rate and inflation, are critical in determining a country’s relative level of economic health. Exchange rate, which is the ratio of conversion of one country’s currency to another, is also vital because it affects the level of trade of a nation. Trade plays a very significant role in any free-market economy across the globe. Due to this reason, the exchange rate is among the most closely watched, analyzed, and most influenced measure of economic health.
The exchange rate also has an impact on individuals since they are the players in the trade and investment both locally and internationally. It affects their returns from investment. Moreover, when one is traveling, they need to be aware of the exchange rate of their home country currency to that of their destination country. Currency converter can help you know the exchange rate as you travel or import things from other countries, thus work out how much of your country’s currency you need.
But what are some of the factors that influence the exchange rate? Read on for a look at several of them.
Inflation
When the inflation rate of one country, say the UK, is lower than that of another, especially a key trading partner, then exports from the UK will be more competitive. The result of that is an increase in demand for the currency of the country with lower inflation.
Taking the example of the UK, the demand for the sterling pound would rise, to facilitate the …