Fundamental Factors
There is a certain point of saturation where everything is stable and sometimes decreasing, for everything in this world. So does Foreign exchange have one? The answer is yes. All events which include fiscal policies and other government policies which affect the economy of the foreign trade and exchange are known as fundamental factors. The long term exchange rates of a currency are affected by these fundamental factors. Until and unless the market turns around to fundamentals these factors remain inactive in short term cases.
The basic economic policies, balance of payments, usage of resources and channeling of funds are generally the basic factors affecting the foreign trade. Usually for the countries which follow string economic policies the exchange rates of the currencies would fluctuate less when compared to other countries and sometimes may even remain stable. In other cases where, the country records a surplus in the balance of payments, the foreign exchange rates will be on an increasing mode in the foreign trade. In converse for the countries which have a deficit in the balance of payment.
Political and Psychological factors
The exchange rates usually believed to have no effect on political and psychological factors of a country on contrary do have some effects in the rates and trend in the foreign trade. The currencies of each country is said to have a way of behavior when it come to trend. The U.S Dollar currency is said to be a safer haven currency during political crisis and other major political events in the country.
Related posts
