Exchanges rates… This is a very important factor that is calculated for every country round the clock. This will help in determining the growth of any particular country or its economic status, in comparison to other countries. As this value plays a vital role, it is continuously monitored and evaluated to know the economic stability of a country. All the people who usually receive money from foreign countries or who send money to other countries, should monitor this value as that can help in deciding the right time for transfer.
Depending on the changes in the market rates, this exchange rate is also going to vary from time to time. These changes occur to the changes in supply and demand of the foreign money or currency. Therefore, it is very important that one knows and understand the factors that affect the money exchange rates while sending or receiving the money to and from foreign countries.
One of the most important factors that effect the money exchange rate is Inflation. When the inflation rate of the country is low, then the value of its currency is going to be high. You will see that the market value of any goods and services of those countries whose inflation rate is low, the appreciation is at a very slow rate, when compared to the countries whose inflation is high. When the inflation rate of any country remains low for a very long time, then the currency values increases and countries with high inflation value will see that their currency value comes down. So if you are planning to send money to Sri Lanka or any other country think twice about inflation.
Exchange rates, inflation and interest rates, all these three are interrelated to each other. Exchange rates and inflation value, both will have the effect of central banks. They make changes to the interest rates and hence these two get effected. The lenders will be able to make high returns when the interest rates are high. If the country’s interest rates goes high, the value of the currency also increases.
Balance of Payments (BOP) or deficit in current account
When the imports value of any country is higher than the exports value, that clearly shows that there is some deficit in the current account of the country. It is clear that the deficit happened as the country is spending more on foreign goods and services than what it is actually earning. So, when there is lack of inflow of current account, then that will show an impact on the currency rate of the country.
Government debts or public debts
The national debts that are owned by the government of that country is called as Government debts. When any country is having large government or public debts, then they will be least attracted by the foreign investors. It is because when the debts are high, the inflation increases and finally debts will be paid off with lesser value.
Political performance and stability
The money exchange rates will depend on the country’s political performance and stability as well. If the country is having lower risk of political issues, then you will be able to attract foreign investors. Which means that you are drawing away investments from other countries. When there is an increase in the foreign capital, then you will also see that the value of the country’s currency increases. But the countries which have an unrest political performance will see depreciation in rate of money exchange.
These five are the most important factors that influence the money exchange rate but you still have many other factors that effects this current or money exchange value in the global market.