Journal of Economics and Economic Education Research (Print ISSN: 1533-3590; Online ISSN: 1533-3604)

Short communication: 2021 Vol: 22 Issue: 5

Factors Affecting the Change of Exchange Rate

Olivia John, Metropolitan State University

Each country determines the charge per unit regime which will apply to its currency. As an example, a currency is also floating, pegged (fixed), or a hybrid. Governments will impose sure limits and controls on exchange rates. In floating charge per unit regimes, exchange rates are determined within the exchange market, which is hospitable a good vary of various varieties of consumers and sellers, and wherever currency commercialism is continuous: twenty four hours each day except weekends. The spot charge per unit is that the current charge per unit, whereas the forward charge per unit is associate charge per unit that's quoted and listed nowadays except for delivery and payment on a particular future date Gabriel et al. (2007).

1. Balance of payments: once a rustic incorporates a giant international balance of payments deficit or deficit, it implies that its exchange earnings are but exchange expenditures and its demand for exchange exceeds its offer, thus its exchange rate rises, and its currency depreciates.

2. Charge per unit level: Interest rates are the value and profit of borrowing capital. Once a rustic raises its charge per unit or its domestic charge per unit is more than the foreign charge per unit, it'll cause capital influx, thereby increasing the demand for domestic currency, permitting the currency to understand and therefore the exchange depreciate.

3. Inflation factor: The rate of inflation of a rustic rises, the buying power of cash declines, the paper money depreciates internally, so the foreign currency appreciates. If each country has inflation, the currencies of states with high inflation can depreciate against those with low inflation. The latter may be a relative appraisal of the previous.

4. Financial and financial policy: though the influence of financial policy on the charge per unit changes of a country's government is indirect, it's additionally vital. In general, the massive financial revenue and expenditure deficit caused by expansionary financial and financial policies and inflation can devalue the domestic currency. The alteration financial and financial policies can cut back financial expenditures, stabilize the currency, and increase the worth of the domestic currency Juthathip (2009).

5. Venture capital: If speculators expect a definite currency to understand, they'll obtain an oversized quantity of that currency, which can cause the charge per unit of that currency to rise. Conversely, if speculators expect a definite currency to depreciate, they'll dump an oversized quantity of the currency, leading to speculation. The currency charges per unit forthwith fall. Speculation is a very important considers the short-run fluctuations within the charge per unit of the exchange market.

6. Government market intervention: once charge per unit fluctuations within the exchange market adversely have an effect on a country's economy, trade, or the government must deliver the goods sure policy goals through charge per unit changes, financial authorities will participate in currency commercialism, shopping for or commerce native or foreign currencies in giant quantities within the market. The exchange offer and demand has caused the charge per unit to alter John (1994).

7. Economic strength of a country: generally, high economic process rates aren't contributory to the native currency's performance within the exchange market within the short term, however within the long-term, they powerfully support the robust momentum of the native currency.


  1. Gabriel, D., Mark, L., & Aurélie, M. (2007). Assessing Competitiveness and Real Exchange Rate Misalignment in Low-Income Countries. IMF Working Paper, Pp. 201.
  2. Juthathip, J. (2009). Equilibrium Real Exchange Rate, Misalignment, and Export Performance in Developing Asia. ADB Economics Working Paper. Pp. 151.
  3. John, W. (1994). Estimating Equilibrium Exchange Rates. Peterson Institute for International Economics.
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