Value of Currency Rates Decide Vacillating Foreign Exchange Rates

If currency rates is parameter of any nation's economic health, so is its fluctuation a parameter of the slippery foreign exchange market. Whenever there is a change in these rates, market based currency exchange rate would also change. Whenever there is an increase in currency rates, it means that the currency is in great demand than its supply. This is called demand and supply rule. If the demand will get decreased, it will not be that valuable and hence its rates too would go low. When they would go low, the foreign currency rate as well as currency exchange rate too will go low. However, if this less value is inferred as people's lack of interest in holding the wealth, then it would be wrong to assume. It just means that people now want another currency which is strong in its value as their wealth in foreign exchange market.

Now, there may be various reasons why currency rates increases or decreases. Increase in currency rates is due to either an increased transaction demand for money or in increased speculative demand for money. Now, the country's business activity, gross domestic product (GDP), and employment levels all contribute to this increased speculative demand for money. For example, if the rate of unemployment is higher, then there will be less spending activity and the demand of goods and services will decrease. This would automatically affect currency exchange rate. However, the central banks of the country are authorized to accommodate changes in the demand for money because of their business transactions. However, the hard part is to manage the speculative demand for money. This hard part is managed by adjusting the interest rates. It is adjusted keeping in mind investor behavior. If the interest rates are higher, then investors would be attracted to buy the currency of that particular country. Following this, currency rates would go higher and the value of that currency in foreign exchange market would go up.