Currency exchange is one way of knowing how much the currency used in your country is worth against the currency of another foreign country. The foreign exchange market controls the exchange rates, and local governments have no control over them. The rates used in currency exchange fluctuate from time to time due to several factors. Here are some of the reasons behind the fluctuation in currency exchange values.
How much interest the central bank of a country pays directly affects the exchange rates of the country’s currency. The higher the interest paid, the more valuable the money becomes. The same goes for the opposite. If the interest by the central bank is relatively low, the currency will also lose some value. Most investors use this knowledge to multiply their money when the odds of the exchange rates tip in their favour.
If a given government prints excess money, it means that a lot of the money will be in the hands of the citizens. If there is a lot of money circulating in the country, then the prices of services and goods will naturally spike. Such a situation is referred to as inflation, and the currency of the country suffers. Although getting lots of money is everybody’s wish, if this comes true, the money would be pretty useless compared to the currency in other countries.
The state of the country’s economic growth also plays a role in the ranking of currencies. One thing that contributes significantly to the economic and financial stability of a country is investments. However, more people are usually willing to invest only when a state is stable. The more investments made in a country, the higher the value of its currency ranks. However, if many people withdraw their finances, the economy suffers, and the currency comes down with it.