What fundametals influence the value of the currency?

What fundametals influence the value of the currency?
In the economic world the behavior of the currency, both in the short and in the long run is defined by several important point that we can find scattered across economic and political spectrum of the world. Here are some of them.

  • Economic growth and outlook
  • Capital flows
  • The government

With economy the picture is quite easy
. When the economic outlook is positive that means that the economy of the country is strong in general. When the economy is strong, consumers are more confident in their spending, generating more revenue for the companies that are giving them the gods and services. That means that the said companies are going to generate more tax return into the governmental system. The more tax money is poured into the economy, the stronger the currency is getting.

Of course with the slow economy and weak and poor economic outlook we are facing quite the opposite. The less confidence means the less spending, and the less taxes are coming back to the government. This way the whole economy together with the currency is going lower and lower.

Money flow on the other hand is the straight consequence of globalization. Sitting somewhere in New York you can easily trade with London exchange or with Bombay exchange.

Capital flows measure the amount of money flowing into and out of the country or economy because of capital investment purchasing and selling. Money flow can be positive and negative. Positive is the money flow going into the country, negative flow is money going out of the country. The greater the positive money flow is, the better it is for the economy.

The greater the demand for the currency is, the more value it gains in the international arena.

Actions of the government are also very important in the world arena. Even though we are dealing with the financial side of business there is no point in discarding the influence that politics have on trading. the more turbulent the turmoil of the country is, the worse it is for the national currency because of traders’ outflow. Less support for the currency means that it is going to cost less and less becoming less and less attractive for traders globally.

The more unstable the political situation is, the worse it is for the currency hosted by the country.

Of course we only tapped into the fundamental things that move the value of the currency in our modern world. every day something happens that makes us think – is the number of these fundamentals even limited? 

Add comment