Currency market fluctuations occur due to floating exchange rates, which is quite normal for all the leading economies. There are a number of technical and fundamental factors that cause the rate of exchange of particular currency to fluctuate in comparison to the other. Some of the common factors are relative demand and supply of two different currencies, the performance of the economy, inflation outlook, differentials in the rate of interest and technical support as well as resistance levels, capital flows etc.
The Effects of Currency Fluctuations
While the effect of currency fluctuations is far reaching for any economy, most of the investors don’t pay close heed to the rates of exchange since they conduct their business mostly in the domestic currency. For any individual, the rates of exchange matter only during transactions or activities like import payments, foreign travel and overseas remittances.
Apart from this, the domestic currency’s value in the forex market is a crucial tool for the central bank, which takes it into consideration while setting the monetary policy. Thus, both directly as well as indirectly, the currency fluctuations impact numerous important economic variables. They play a vital role in the rate of interest that you pay for the mortgage, the ROI on your portfolio and the grocery prices in the market and even your job prospects.
How Does the Currency Fluctuations Affect the Investors and Economy?
The impact of currency market live fluctuations is massive on the economy of any country. In fact, the currency levels affect a country’s international trade, i.e. its imports and exports. In essence, a weaker forex currency stimulates exports and makes imports extremely expensive, thus reducing a country’s trade deficit.
When the domestic currency is strong, it results in the government tightening the monetary policy, which pushes the rate of interest higher. Changes in the forex market on a global market that records a daily trade volume of more than $5 trillion, affects the economies around the globe. Given such a scenario, you can benefit from investing in numerous ways. For instance, you can invest overseas to profit from the currency market today. Hence, if you are based in the US and feel that the USD is declining, then you could easily invest in a strong overseas currency market since your returns will be higher due to the appreciating forex currencies.
As an investor, you must understand that the low rate of exchange is good when you are considering selling the currency. For instance, say you own a house for a period of five years and then decide to sell off the property for Rs. 1,00,000. Next, you decide to exchange the proceeds of the sale for USD. In such a case, a low dollar rate of exchange as compared to the Indian rupee will be much better. You can sell your house for Rs. 1,00,000 and later transfer the amount to The United States. Now, while transferring if the rate of exchange is 1.20, then the investor shall get $83,333. But, if the dollar drops to 1.10 as opposed to the rupee, then for Rs.1,00,000 the investor would get $90,380. This is why a low rate of exchange can be great for the investor. Apart from this, when the rate of exchange is higher, it lifts the nation’s purchasing power. This is obviously good for investors who are looking to earn higher profits through currency investment.
Conclusion
To sum up, currency fluctuations impact the economy and people of the country in several ways. Investors can utilise these movements to extract maximum benefit through them. For instance, they can invest in the overseas currency market or for that matter even in the US MNCs, especially when the US dollar is weak. However, tracking the currency market can be difficult without proper research. You may want to tap into the expert guidance from a reputed stockbroker like India Nivesh Ltd. that can give you research reports and save your time.
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