The country’s economic strength level is determined by factors such as inflation, exchange rates, and interest rates. The vital role that the exchange rate plays is in the level of the country’s trade. This is vital to any of the free market economies that are in the world. What you will find is that exchange rates are analysed, watched and manipulated by the government and its measures of economics. Exchange rates also matter on a much smaller scale as well, and they do impact on the return that an investor has in his portfolio. Here are some of the factors that have an impact on the rates and their movements on the exchange rate.
So how does the exchange rate affect the trading relationship between one nation and other nations? If they have a higher currency then that country’s exports will become expensive and imports will become cheaper in markets that are foreign. So what you will end up having is a high exchange rate which in turn will lower the balance of trade in that country and if their exchange rate is low then the exchange rate will increase.
There are many things that will determine the exchange rate and it is always related to two countries and the trading relationship between them, with exchange rates being so relative they are a comparison and expressed in a way that looks at two countries and their currencies. The determinants are principal of the rates of exchange and between the two countries. There is no order in which these factors are placed but their importance and relevance are of much debate.
When it comes to currency its portfolio holds the investment and the bulk of it, this is also what determines the real return of the portfolio. When a rate is declining on the exchange rate this will decrease the power, when it comes to purchasing capital gains and income which comes from any returns. With exchange rates influencing factors such as inflation, capital gains, and interest rates from securities that are domestic, it is no wonder that exchange rates are determined by factors that are numerous and yet complex.