The Factors for Currency Exchange Rate Fluctuations

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1. The current exchange rate between the Euro and the US dollar is 1.3049 dollars to a Euro. The historical annual average exchange rates for this currency pair are as follows: USD Average bid ask 2002 0.96057 0.96097 2003 1.14845 1.14889 2004 1.24807 1.24846 2005 1.23608 1.23646 2006 1.26354 1.26394 2007 1.38480 1.38519 2008 1.45954 1.45995 2009 1.40210 1.40249 2010 1.31960 1.32001 2011 1.38852 1.38893 *2012 1.31765 1.31802 source: Oanda There are a number of factors that influence currency exchange rate fluctuations. The determinants of exchange rates are differentials in inflation, differentials in interest rates, current account deficits, public debt, terms of trade, and political stability/economic performance (Van Bergen, 2012). Each of these factors influences either the supply of a currency or the demand for the currency. The value of Euro rose against the dollar over the past ten years for a few different reasons, among them rising deficits in the US, increasing demand for the Euro as a global currency, and rising inflation in the US during the middle part of the last decade. These fluctuations would have an influence on trade between the US and Europe. In particular, tourism by Europeans to the US would become cheaper with the strength of the Euro, but for Americans travel to Europe would be increasingly expensive. This will also affect the flow of goods, as European goods will be very expensive in America, whereas American goods would
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