Factors Affecting The Foreign Exchange Market

With a floating exchange rate, such as Australia's, supply and demand factors largely determine the dollar's equilibrium price. The exchange rate is sensitive to changes in both demand and supply, which can cause changes in the equilibrium exchange rate. Another factor, which can affect the supply and demand of Australian dollars, is intervention in the market by the Reserve Bank of Australia.

) Hence, there is essentially a self-correcting mechanism in the foreign exchange market. A stronger dollar basically leads to a weaker dollar while a weaker dollar eventually leads to a stronger one through the implications of growth.

Exchange rates play a pivotal role in the relationships between individual economies and the global economy. Almost all financial flows are processed through the exchange rate, as a result the movements and fluctuations of the exchange have a significant impact on international competitiveness, trade flows, investment decisions and many other factors within the economy. Due to the increasing globalisation of the world economy, trade and financial flows are becoming more accessible

In the similar time period Japanese Yen has been in the third position with a turnover position of 20.8% in the year 2005. The overall financial market currency structure has seen a decline in the turnover position of the US Dollar to 85% from a strong position of 88%. Similarly a decline has been in the position of the Japanese Yen to 17.2% from an acceptable turnover position of 20.8%. While considering the trend of these two currencies during the period starting from 2007 and ending at 2010, it is to be noted that minute changes were seen in the two different currencies with regards to their share in foreign currency market. The US Dollar witnessed a continued fall to 84.9% from its previous 85.6% however, the Japanese Yen saw a rise from its previous position of 17.2% to an increase of1.8% that is 19%. During the same time period the US dollar and Japanese Yen were the second most traded paired currencies and was traded at around 14% of the overall foreign currency market second to the US Dollar and Euro pair. Conclusion The foreign exchange market has seen considerable changes owing to the global financial crisis. It is to be seen how different factors like economy and global politics further impact strong currencies like the US Dollar and other competing currencies such as the Japanese Yen.

During the second half of 1997, currencies and stock market prices plunged in value across Southeast Asia, beginning in

The value of the dollar rising or falling to a country depends on market forces and economics in that country. The reasons why the dollar is rising or falling decides the desirability of the dollar rising or falling. When compared to another country's currency, it can determine whether it is an advantage or disadvantage to the country's economy. The reasons why the dollar is rising or falling can also determine a weak or strong economy and can affect the economy in good and bad ways.

Even analysists with advance education and years of experience did not foresee the above patterns, and additionally are rather confounded as to why the rates are acting in such a manner. The Bank of Japan (BOJ) has taken steps to halt the appreciation of the yen by decreasing interest rates (Hunter, 2016). While at the same time, many are accusing China of

Like stated previously, each factor has its own respected relationship to the exchange rate within the global market. But a large influence is in part to how much a currency is worth is correlated to how much value that currency is backed by the local government. Physical cash has to be supported by goods and/or gold for the currency to be worth anything. This value comes from a balance with in accounts and controlled government spending. The current account is the balance of trade between a country and the trading market, based off of all payments between other countries for goods and services. Any deficit in the current account shows if there is more being spent on imports products than being earned by exporting its own goods. These deficits in turn force countries to borrow capital from foreign sources to make up for this difference to keep the balance. “This excess demand for foreign currency lowers the country 's exchange rate until domestic goods and services are cheap enough for foreigners, and foreign assets are too expensive to generate sales for domestic interests.” (Van Bergen)

This means that one of the most important factor for exchange rates movement is the different inflation rates between

One factor which has the potential to cause a crisis with a currency is an unstable economy that has been or is in the process of economic deregulation. Without proper governance of the financial or economic systems of a country, the market price of a currency and the confidence in that currency may be weakened. If other countries perceive another economy to be weak, then certainty about investments in trade, industries, and the currency itself may fall. Countries and companies are less likely to participate in business with a country which has an unstable or poorly regulated economy, which can weaken a currency further.

I first describe the forces behind the movements in the exchange rate through macroeconomic model. I, then, use these models to suggest an exchange rate policy for the US economy that can help its transition from the Great Recession.

Factors that Determine the Currency Exchange Rates Exchange rate is often referred to as the nominal exchange rate. It is defined as the rate at which one currency can be converted, or 'exchanged ', into another currency. For example, the pound is currently worth about 1.824 US dollars. One pound can be converted into 1.824 dollars. This is the exchange rate between the pound and the dollar.

Though the exchange rates between the dollar and other country’s currency fluctuates monthly, it was a gradual change over the past two years against the YEN, EURO, and MXN. The exchange rate between USD and GBP was the most volatile change over the two year period. Overall, the USD has strengthened against the YEN, EURO, MXN, and GBP since June of 2014 (Prakken &

In this section, we will discuss the aspects of modelling the exchange rate volatility and trade. In particular, we briefly sketch the Gravity approach in the same spirit as Awokuse and Yuan (2003) for modelling trade relationships between Thailand and twenty-one trading partners, then we go on to outline our choice of exchange rate uncertainty measure and econometric methodology.

This paper tackles the effects of the foreign exchange rate as a whole and how it affects the country and at the same time how it gets affected. This paper enumerates the advantages and disadvantages of having a strong Peso. The paper also discusses what factors affect the strengthening and weakening of the Philippine Peso. This paper also includes an in depth analysis of how the foreign exchange could affect and gets affected by the economy, the society and politics.