| Foreign exchange rates influence the fundamental | | | | always in mind that the value of a particular currency |
| situation of other markets. In general they reflect the | | | | always reflects its buying power. The forex market |
| strength or weakness of a particular economy. There | | | | came into the existence to facilitate trade only, and |
| are certain factors that directly influence forex prices. | | | | trade is a major factor in the determination of the |
| These factors generally fall into three categories: | | | | value of a particular currency. More demand of the |
| economic factors, political conditions and market | | | | goods means higher values for that currency. This |
| psychology. Economic factors include economic policy | | | | influence forces the forex dealers keep a close |
| of that particular country circulated by government | | | | watch on the international trade data. Capital flows |
| agencies and central banks, economic conditions | | | | indicate the investment of capital in that country. |
| prevailing in that country and other economic | | | | Investment also works on the same pattern as |
| indicators. The market usually reacts negatively to | | | | trade. If a country receives a lot of investment its |
| expanding government budget deficits, and positively | | | | currency would be in great demand. The forex |
| to reduction in the budget deficits. The trade flow | | | | dealers look at the capital flows in the same way as |
| between a set of countries illustrates the demand for | | | | they look at the trade data. |
| goods and services that also indicates demand for a | | | | The US Dollar is always treated as a reserve |
| country's currency to conduct trade. Any currency | | | | currency internationally; other countries keep a |
| loses value if there is a high level of inflation in the | | | | healthy supply of Dollars on hand as a precaution |
| country. The gross domestic product (GDP), | | | | against any future adversity. This always propels the |
| employment levels, retail sales, capacity utilization etc. | | | | demand for the Dollar as all of the major global |
| denotes the level of a country's economic growth | | | | commodities like oil and gold are denominated in |
| and health. | | | | Dollars. Any country buying such commodities has to |
| Internal, regional, and international political conditions | | | | exchange their own currency for Dollars in the first |
| and events of any particular country can have a | | | | place to make a purchase; this always increases the |
| profound effect on the forex prices. Market | | | | demand for the Dollar. |
| psychology and trader perceptions influence the | | | | Looking at one country or currency is not enough for |
| forex prices in different ways, unsettling international | | | | any dealer because a currency is always valued and |
| events can lead to a greater demand, thus a higher | | | | traded against an array of other currencies having |
| price, for currencies considered as stronger over their | | | | their own sets of considerations. Although exchange |
| relatively weaker counterparts. Beside these there | | | | rates are affected by many factors, in the end, |
| are some other factors also, that influence the forex | | | | currency prices are a result of supply and demand |
| prices. | | | | forces. If the supply of any currency shows the |
| Interest rates play a major role when the idea of | | | | shortage in the forex market then the prices for the |
| evaluating one currency against another comes in to | | | | same would rise on the other hand if the supply is in |
| play. The interest rate determines the capacity of | | | | a very healthy condition and the demand is very low |
| earning for a particular currency. Inflation influences | | | | for that currency then the prices for that currency |
| the interest rates greatly. If interest rates of country | | | | bound to fall. This is the major conclusion of all above |
| are rising because of a healthy economic growth that | | | | and the forex dealers keep a cautious eye on this |
| is a positive sign for the currency. It has to be kept | | | | fact patiently. |