Introduction
The exchange rate refers to the value of the US dollar against the values of currencies of other countries. Such a rate helps determine how much we pay for imported goods and services and how much we receive for what we export, among other things. When the value of the US dollar drops, imports become more expensive, and we tend to reduce the volume of our imports. Simultaneously, other countries will pay LESS for some of our products and that will tend to boost export sales. If imports and exports are a substantial part of a country's economy, as is the case with Canada, the exchange rate plays a particularly important role in our economy. The exchange rate between two countries' currencies is particularly important if the two countries are heavily involved in trade.
What factors affect an exchange rate?
A country's exchange rate is typically affected by the supply and demand for that country's currency in international exchange markets. This is typically known as a floating exchange rate. If demand, for say dollars, exceeds supply, then the value of the dollar will go up. If however, the supply of dollars exceeds demand, then its value will go down. A huge amount of money is bought and sold on international exchange markets for many different currencies.
Several factors influence the supply of, and demand for, a given country's currency.
If INTEREST rates are HIGHER in, say, the US than in other countries, then investors WILL choose to invest in the US, increasing demand for the dollar, provided that the expected rate of inflation is not higher in the US than among our trading partners. If INTEREST rates are LOWER in the US than in other countries, investors will choose NOT to invest in the US, decreasing demand for the dollar.
If the US INFLATION rate is HIGHER, investors are LESS likely to prefer the US -even with higher interest rates- because of the expectation that the value of the dollar will be ERODED by inflation. If our INFLATION rate is LOWER, investors are MORE likely to prefer the US, because there will be NO expectation that the value of the dollar will erode.
Trade balance also has an effect on a country's currency. If world prices for what a country exports rise in comparison with the cost of that country's imports, that country will be earning more for its exports than it pays for its imports. The more demand there will be for that country's currency, the better the deal becomes. If investors are confident that the US economy will be strong, they will be MORE likely to buy American assets, pushing UP the dollar's value. If investors are not so confident that the economy will be strong, they will be LESS likely to buy the country's assets, pushing the dollar's value DOWN.
Joshua Kunken is Chief Currency Analyst for ForeignMarketWatch.com
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The exchange rate refers to the value of the US dollar against the values of currencies of other countries. Such a rate helps determine how much we pay for imported goods and services and how much we receive for what we export, among other things. When the value of the US dollar drops, imports become more expensive, and we tend to reduce the volume of our imports. Simultaneously, other countries will pay LESS for some of our products and that will tend to boost export sales. If imports and exports are a substantial part of a country's economy, as is the case with Canada, the exchange rate plays a particularly important role in our economy. The exchange rate between two countries' currencies is particularly important if the two countries are heavily involved in trade.
What factors affect an exchange rate?
A country's exchange rate is typically affected by the supply and demand for that country's currency in international exchange markets. This is typically known as a floating exchange rate. If demand, for say dollars, exceeds supply, then the value of the dollar will go up. If however, the supply of dollars exceeds demand, then its value will go down. A huge amount of money is bought and sold on international exchange markets for many different currencies.
Several factors influence the supply of, and demand for, a given country's currency.
If INTEREST rates are HIGHER in, say, the US than in other countries, then investors WILL choose to invest in the US, increasing demand for the dollar, provided that the expected rate of inflation is not higher in the US than among our trading partners. If INTEREST rates are LOWER in the US than in other countries, investors will choose NOT to invest in the US, decreasing demand for the dollar.
If the US INFLATION rate is HIGHER, investors are LESS likely to prefer the US -even with higher interest rates- because of the expectation that the value of the dollar will be ERODED by inflation. If our INFLATION rate is LOWER, investors are MORE likely to prefer the US, because there will be NO expectation that the value of the dollar will erode.
Trade balance also has an effect on a country's currency. If world prices for what a country exports rise in comparison with the cost of that country's imports, that country will be earning more for its exports than it pays for its imports. The more demand there will be for that country's currency, the better the deal becomes. If investors are confident that the US economy will be strong, they will be MORE likely to buy American assets, pushing UP the dollar's value. If investors are not so confident that the economy will be strong, they will be LESS likely to buy the country's assets, pushing the dollar's value DOWN.
Joshua Kunken is Chief Currency Analyst for ForeignMarketWatch.com
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Q1: When you consider that the foreign exchange market has become the world's largest financial market, with over $1.5 trillion USD traded daily, where does it go from here?A1:The FX market is unique, in the UK there is no central exchange, we trade via the inter bank market.
Money Management, Part 1
There are some common mistakes I've seen traders make in the area of money management. First, let's understand what money management is all about.
FOREX - Where Fortunes Are Made Everyday
The Foreign Exchange Market - better known as FOREX - is a world wide market for buying and selling currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week.
Assessing the Opportunities Presented by the New Iraqi Currency
Could it be possible that you are staring right into the most spectacular financial opportunity of the century? Operation: Iraqi Freedom will undoubtedly be a war marked in history for loss and tragedy, American victory, and the rise of a nation with a new democratic government. But could it also be a war historically remembered for the financial opportunity it created for the sharp investors who keenly recognized an ephemeral chance at the right time?The War on Iraq ended with a nation placed on the footstool of many new operations.
The Nature of the Trading Business
Consider the following: As a trader you are in a business. Your strongest opponent has plenty of capital.
Trading Profitably on the Foreign Exchange Market
You may be asking yourself "how does one begin to trade profitably as a currency trader?".First, it is important to closely monitor foreign equity markets to attempt to predict or model how their respective currencies will perform against other currencies, ideally, currencies that are not very closely related, nor proportional, to the former currency.
A Look at Forex Market Makers
The investor in the currency market takes for granted that a pair of currencies can be bought or sold at a moment's notice. Once an order is placed with a broker, the trade is executed within seconds.
Mechanical or Discretionary Trading - Which is Best?
Discretionary TradingPure discretionary trading will rely solely on the traders judgement. For example a discretionary trader may spot a particular pattern developing on a chart and decide to enter a trade on that basis.
Trade Exit - How To Cut Losses And Let Profits Run
Cut your losses short and let your profits run. This is the essence of your trade exit rules.
Psychology Of Trading
The psychological aspect of trading is usually underestimated by those new to trading. The psychological problem for most traders is the fear of losing - ironically it is this fear that causes most traders to lose money in the long run.
6 Critical Factors For Successful Trading
Success in any profession can be broken down into a number of critical factors. Trading is no different.
Risk and Stock Trading Fees: The Two Barriers To Overcome If You Want A Successful Trading Career.
You know the old joke:"How do you make a million in the stock market? Start with two million?"There is no way around it, risk and stock market fees are a part of trading that you can`t avoid. But, you can manage your risk.
Reality of Online Forex Trading
Foreign exchange trading is the trading of currencies. Most currencies can be traded.
An Evaluation of the Devaluation
A Minister of Finance is morally right to lie about a forthcoming devaluation and a woman has the right to lie about her age. This is the common wisdom.
Advantages of Trading FOREX Over Stocks and Commodities
There are many advantages to Trading FOREX as your main income generator. Let's start by something that may be worrying you already.
Why Hedge Foreign Currency Risk?
International commerce has rapidly increased as the internet has provided a new and more transparent marketplace for individuals and entities alike to conduct international business and trading activities. Significant changes in the international economic and political landscape have led to uncertainty regarding the direction of foreign exchange rates.
The Major Players in the Foreign Currency Exchange Market - FOREX
Since the US dollar is the centerpiece of the market, it is normally considered the 'base' currency for quotes. In the "Majors", this includes USD/JPY, USD/CHF and USD/CAD.
Options Trading - Advantages and Disadvantages
What is Options Trading?An option is simply granting someone the right to buy or sell something in the future. In the case of Dow index futures options, when someone buys a Dow call option they are buying the right to purchase that underlying Dow future at a specific price, known as the "strike price," at a future point in time, known as the "expiration date.
ISO 4217 in Forex Trading
ISO 4217 is an international standard describing three letter codes to define the names of currencies established by the International Organization for Standardization (ISO).The first two letters of the code are the two letters of ISO 3166-1 alpha-2 country codes (which are similar to those used for national top-level domains on the internet) and the third is usually the initial of the currency itself.
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