Is your mind boggled by currency rate fluctuations? If so, then you should check out this easy-to-understand explainer guide.
2019 has seen some currency values enjoy all-time highs, while others sunk to record lows. Currency rates are constantly moving, but what exactly causes the value of a currency to rise or fall?
Firstly, Why Should You Care About Currency Rate Movements?
When your native currency moves up or down in value, it can have an impact on many different aspects of your life. Here are three different ways that currency rates can influence your daily life:
- The first thing that jumps to mind is travel overseas. The strength or weakness of your native currency will affect the overall cost of the trip. With a strong currency, you’ll be able to buy more, whereas a weak currency will make everything more expensive.
- It can also affect your cost of living and quality of life. A strong native currency will reduce the cost of purchasing imported goods, whereas a weak currency will have the opposite effect.
- What’s more, currency values can affect the jobs market. A strong native currency can make domestic products more costly to produce as staff needs to be paid more, this can cause companies to outsource operations to a country with a weaker currency.
What Factors Contribute to Currency Rate Fluctuations?
Currency rate fluctuations basically boil down to the rule of supply and demand. There are many reasons why the balance between supply and demand may change. Some major contributing factors include:
- Inflation and interest rates
- Balance of payments
- Terms of trade
- Government intervention
- Monetary policy
- Government debt
- The political and economic climate
- Market speculation
To learn more about why and how exactly these factors affect currency rates, scroll down to the below infographic from the team at All Finance Tax.