Your Questions About Forex Rates

Michael asks…

what are the factors affecting forex rate ?

What are the factors really affecting a currency exchange rate. Does it have any direct connection with country’s economy.?

kenspong answers:

4 factors effect exchange rates. Economic Data, Political Data, Natural Disasters and Acts of war.

Of course the other answer here is also correct – its simply supply and demand based on the above 4 factors.

Thomas asks…

what factors are considered by commercial banks and the forex shops in fixing the daily exchange rates?

kenspong answers:

Well of course one main factor they consider is generating a profit!

What they do is they take the currency rate; it is usually active – and not fixed. They then put a spread between the buy and sell price – this is how the forex dealers make money.

Say if you bought US with your currency then sold the US back instantaneously you will find that you may have lost .5 to 3c per dollar or maybe even more because of the spread.

Richard asks…

what is the connection between interest rate,inflation, and forex rate ?can someone explain with example ?

i want to understand the phenomenon of rupee depn, high interst rate in india.

kenspong answers:

The economy plays the main role in defining all these factors
as u might know inflation is the rise in the prices of the commodities
now interest rates does not respond directly to inflation, but to control inflation interest rates are raised.
What this does is it reduces the amount of money flowing in the economy, which reduces the demand for goods and services and there by restricting the demand side of inflation

now forex rates is exchange rate of one currency in respect to another. It generally reflects the rate at which the economy is growing

indian economy, as a matter of fact the global economy is going through the classical “BOOM” phase, which might be followed by the “RECESSION” phase.
The boom phase is where the economy grows at an exceptionally high pace which is followed by saturation of production. Here the production is not able to keep pace with the high demand of goods (which is caused by the extraordinary income of boom phase), which leads to inflation. And this further leads to high interest rates to curb the demand

Laura asks…

which forex website offers the best rates with minimal fees?

kenspong answers:


Paul asks…

In Forex, why does the rate of a currency pair IMMEDIATELY go down every time I buy?

I sold (took a loss) to buy at the lower rate (to try to get profit at the lower rate) and when I did, the rate IMMEDIATELY dropped AGAIN!!!! What’s going on? Can you explain to me what’s happening? Thanks.

kenspong answers:

I’m not sure why you would take a loss on purpose here (your stated purpose of getting a profit at the lower rate makes no sense), but remember that when dealing with foreign exchange, you’re dealing in pairs. It’s not useful to think of these exchanges as analogous to equity markets, because they’re not. Further, unless you’re dealing in the kinds of volume that makes you a market mover, your transaction has nothing to do with moves in the prevailing rate. You’re not dealing in those kinds of volumes, so you’re seeing causation where not even correlation (well, other than very weak) exists. Forex is not parimutuel.

I sincerely hope that you are participating in some sort of ‘play money’ exercise and not wagering your own money. If you are involving your own funds, a bit of unsolicited advice: get out now. No matter what the man on the infomercial or in the book says, currency exchange is not for the individual investor, you *will* be eaten alive by sharks, and you *won’t* see it coming.

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