Economical Factors Affect Foreign Currency Rates

Forex is being traded round the clock for 24 hours of the day. It starts with the Tokyo morning and runs upto U.S. Midnight. Central banks, big financial institutes and global investors continuously buy and sell currencies thus the value of foreign currency rate keeps fluctuating. Travelers and big biz often come across currency exchange rates when they are traveling abroad but hardly 1% of them may be knowing what are the factors affecting foreign currency rates.

Currency exchange rates are the core integral part of forex market, over $20 trillion is traded per day. Trading is simply exchanging one currency to another and the relative rate at which it is exchanged is the exchange rate. Foreign currency rates are of two types: fixed and floating rates. Fixed rate of the respective nations is decided by their central banks and it is decided in relation of the other currencies in the world. Once any nation government fix the currency rate, the bank starts international trading to maintain its home currency.

The rule of demand and supply decide for the floating rate of the nation's currency. For example, US currency is having the highest demand in the market means that it is strong currency and if the demand of your currency is less then your currency is considered weak. The government may interfere in the floating rates when the inflation rate in nation goes very high. Interest rates released by the central banks is also one of the major economical factor affecting foreign currency rate. If the china government is offering 9% interest rates for the investors and can buy Japanese yen in 1%  interest rate then investors will pay in Japanese yen to buy Chinese currency. If the interest rate is lower the demand is lower and the currency is weak.

Furthermore, the unemployment situation also affect on the currency rate of that nation. People purchase less products which devalue currency in the international market. The industrial growth also affect on the currency rate which in turn impact on the exchange rate.