Basic Forex Economics

Submitted by currenciesfx on Thu, 04/14/2022 - 07:51

Factors Affecting Exchange Rates

Similar to any other financial price, the price of an exchange rate is determined by the forces of demand and supply. The price of an exchange rate reflects many economic and non-economic factors. The most important factors are interest rates, inflation, growth, employment, and political risk.

Exchange Rate Theories

Submitted by currenciesfx on Mon, 04/11/2022 - 08:25

Five Traditional Exchange Rate Theories

The traditional exchange rate models seek for the identification of an equilibrium between two economies in order to calculate the fair value of the exchange rate. An equilibrium based on the relative valuation of an identical commodity, on relative inflation, on the relative level of real interest rates, etc.

Balance of Payments Theory

Submitted by currenciesfx on Mon, 04/11/2022 - 08:04


According to the Balance of Payments theory, changes in a country’s national income affect the country’s current account. Consequently, the exchange rate is adjusting in a new level in order to achieve a new balance of payments equilibrium.