Forex is all about exchanging one currency with another. If you are a part of forex then it is as important to know about currency exchange rates as foreign currency rates. It’s known that foreign currency rates changes in value at every second but very few people know why they fluctuate. If the foreign currency rate of any nation is increasing or decreasing not every civilian of that nation realize the impact of these transition unless and until they conduct international currency exchange.
If you have ever visited the foreign country, you know how important the currency exchange rate for you. You may get whole meal in say 50 bucks of your home currency but just a cup of coffee when you are at the foreign destination. Global investors get large profits and losses based on these currency rate movements. If you are a investor then it is beneficial for you if you understand the parameters which causes the random movements in currency rates.
Currency rate for every nation is defined in two ways: one is known as fixed rate and another as floating rate. The fixed rate is decided based on gold which never fluctuates. This was the system adopted by each nation upto 1970s. At that time the currency rate was equivalent to gold and only central and international banks can change their values. Floating exchange rate keeps changing in value. The floating rate of nation is a relative value of its currency with regard to the other foreign currencies which is determined by the factors like import-export, tourism, international trade, inflation, interest rates,political stability, etc.
There are some nations like china and europe use semi-fixed rate currency. However, US is forcing such countries to use floating rate system. USD is the strongest and maximum traded currencies in forex and one of the reasons is its political stability. Investor will not invest in the country where war is going on between the government and the civilians and the currency is at the verge to finish. The constant increasing demand of US currency and limited supply is increases its floating rate currency.
