And who determines currency values?
The answer to the second part is easy. The currency value is determined by the buyer of the currency. These are primarily travelers, governments and forex traders. FOREX stands for Foreign Exchange. There are many factors that currency traders, governments and companies take into account when determining the fair market value of a currency.
Fair market value is the price at which a willing and willing seller meets. The buyer must deal with many items and considerations to try to accurately evaluate the currency value at any given time. There are approximately 180 different currencies in the world now. Let's examine some of the factors that are used to determine the value of a currency.
Factors affecting currency value:
1. Political conditions in the country – this includes the stability of the government, the amount of corruption and bribery and the degree of law and order. It also includes state relations with other countries, especially with the United States, the United Kingdom, China and Russia. The form of government in the country is also a factor used to assess the value of a currency. Think of different forms of governance widely in Saudi Arabia, China, the United Kingdom, Venezuela and Thailand, to name a few.
2. Economic situation – This includes factors such as jobs, unemployment, work ethics, infrastructure, inflation and the direction of the economy. Do older or newer in routing; high-tech computers, or more agriculture and manufacturing.
3. Perception from the outside – The perceptions and attitudes of other countries towards a country are as important as the reality of the actual situation of the country. News, media, movies, newspapers, rumors and spin can create perceptions. How much does he know about the country? The more commonly known, the lower the value of the currency.
4. Demographics – Young people may mean better opportunities for the future, more open to change and more workforce. The total population of the country is a factor. How much weight does this country have on the world stage?
5. National Leaders – Openness, trustworthiness and admiration of visible leaders are factors. This includes political leaders, sports figures, business owners and celebrities. Here are some national figures that affect their countries, for better or worse. Kim Jong-il, David Beckham, Nicole Kidman, Madonna, Osama bin Laden, Barack Obama and Vladimir Putin. This assistance is the world's perception of a country.
6. Isolation vs. Openness – Continuity China has become more open and more transparent. This helps. Cuba is closed and very isolated. Venezuela has become more isolated because of some of its recent actions. China's markets are becoming more open. Cuba, Kyrgyzstan, Russia and Japan all enjoy different levels of openness with the outside world, affecting the value of their currency.
7. Natural Resources – The type and extent of exploitation of a country's natural resources certainly helps to create a perception of the value or absence of a country's currency. Mining of minerals, forests, oils, fish and other resources. Also the level of technology to develop these resources.
8. Climatic factors such as drought, tsunami, earthquake and flood are taken into account. How frequent they are and how the country responds. These also affect the desire, safety and perception of the country. Is it a tourist destination?
9. War and Conflict – With any other country at war, who is the Allies? Their military strength and technology, their willingness to go to war and why, are important factors in assessing a country's strength, stability and currency value.
10. Education – includes spoken languages, computer literacy, Internet connection, culture and religion. All scientists, entrepreneurs, authors and inventors are influenced by the type and quality of education in any country.
In conclusion, currency values are determined by many factors. Not only one issue, but many composite must be considered. In forex trading, as in FOREX, trades are usually made in pairs. Values must be related to something. So how one country performs for another is also important. Common foreign currency pairs are the US dollar, Japanese yen, euro and US dollar, for example. These and other factors determine the value of a currency. Some are tangible, some are intangible. Some are fixed and some are manageable. Sometimes this is news of the moment and sometimes the long-term situation. This is why currency values often change and there is no single place or person determining currency values. Why, based on volatile currency values, currency exchange can be an exciting, profitable, volatile, fun, or disastrous form of business or investment.