2. EXCHANGE RATE
Exchange rate means value of one currency in term of other.
For instance 01 USD = 155.22 PKR
This is Dollar and Rupee exchange rates and
indicates the value of Pakistan rupees per unit
of Us dollar.
3. EXCHANGE RATE
But this exchange rate does not stable.
Basically fluctuation is caused by demand and supply of the currency.
The Demand and supply generally affected by country’s trade and its
Macroeconomics policies.
Following are some of the reason for
fluctuation in exchange rates.
4. INTEREST RATES
When interest rate in home country is higher than other
country, more foreign investor will be attracted to invest in
home country to make capital gain. In this case demand
for home country’s currency will increase and may cause it
to appreciate.
5. MONEY SUPPLY AND INFLATION
At the time central bank of country
will print more money, the supply of
money will increase in the market.
Which results in increase in
purchasing power of customer also
and which ultimately increases
inflation.
Since inflation and currency value are
inversely related, with increase in
inflation currency depreciates.
6. ECONOMIC GROWTH
When the economic growth of a country is high FII would
divert there investment to such growing economy by selling
their investments in other countries, which increase supply of
currencies of those countries of which FII’s are selling
investment causing it to depreciate and the currency of
country, in which are diverting their investment, appreciate.
7. FOREIGN DEBT
With borrowing comes an obligation to repay the
money along with interest. So when a country borrows
more foreign debt it need more foreign currency to
repay that loan, which makes it to sell more home
currency to buy foreign currency resulting in
deprecation of home currency.
8. CONCLUSION
Basically all these factors are linked to each other.
For Example:
When in country balance of payment the export is greater
than import we call there is surplus. Normally it has seen the
country which face the surplus there currency value increase
than country which make deficit.
