What factors affect currency exchange rates?

Here are some of the top factors that can affect an exchange rate: 1. Inflation Rates Changes in market inflation cause changes in currency exchange rates. A country with a lower inflation rate than another's will see an appreciation in the value of its currency. The prices of goods and services increase at a slower rate where the inflation is low.

What are the determinants of exchange rates?

A falling exchange rate reduces the purchasing power of income and capital gains from any returns. Additionally, the exchange rate affects other income factors such as interest rates, inflation, and even capital gains from domestic securities. So, understand these determinants of exchange rates to trade safely in the currency markets.

How do exchange rates affect international trade?

Exchange rates significantly influence international trade by affecting the relative prices of goods and services between countries. When a country’s currency appreciates, its exports become more expensive for foreign buyers, potentially reducing demand.