what determines exchange rates in forex market?
What Determines Foreign Exchange (Currency) Rates
There are number of factors that contribute to changes in Forex rates. Below are some of them.
1. Interest rate movements
A rational investor will often look for the best place, in terms of returns, to park their money. If interest rates were high and outlook for the stock market is grim for example, then currency might be the better option (more attractive). Then, currency becomes more expensive due to the high demand..
Also, if you look at two countries. For example, the United States of America and Australia. Australia, at the present moment, has a higher interest rate than the US of A. Thus it makes more sense to park money here in Australia than in the US, thus earning a higher interest. Again, this will drive US Dollars down and push the Aussie Dollars up. This is what you call as… CARRY TRADE.
2. Central Banks Manipulation
A Central Bank can be a major player in the Forex market. It can buy and sell large sums of currencies to manipulate the market. There are many reasons to why central banks do this, but they will not be discussed here.
Bank Negara Malaysia was an influential player in the Forex market, to the point of getting a warning from Alan Greenspan, the then chairman of US Federal Reserve.
Also, referring to the 1st factor of interest rate movements, the central bank is the setter of interest rates.
Pretty similar with above, the big players in the market like institutions or just people with heaps of money, they can influence Forex market movements by buying or selling large sums of currencies.
4. Unexpected News Announcements
Any unexpected political and economical news announcements can also cause movements in the Forex market.
5. Balance of Payments
Okay, this involves a few jargons like balance of payments, export, import, current accounts, deficits, and surpluses. I’ll just put them in an example.
Suppose a country is exporting goods & services more than it is importing, resulting in more money coming into the country. In this instance, the state of current account surplus is to be expected (let’s just assume that is in surplus). Large current account surplus will make the currency to appreciate.
Contrast this with a country that imports more than it exports (i.e. More money going out than coming in), in which current account deficits will exist (let’s just assume that it is in deficit). In this instance, the currency will depreciate.
All in all, we can conclude that at the end of the day, Forex rates are determined by supply and demand. If there is a high demand for a particular currency, it will appreciate. If there is a low demand for a particular currency, it will depreciate.
why the forex rates are fluctuating day by day ?
Due to global increase in trade and foreign investments
Where is the best FOREX in Makati City, Philippines with the best Dollar to Peso rates ?
Last time I saw SM @43.10.
others i heard was Czarina @43.30
Is there any better places ?
Black market the give you higher exchange rate. BDO but they need your passport!
why did the markets (forex and stock mkt) rally after the interest rates were raised today?
isn’t the interest rate rise supposed to lead to an appreciation in USD? also, why did the equity market surge?
Many people through that a .5% hike was possible, so .25% was below some expectations and it’s all about expections since the .25% was already priced in. Also, the more important bit was the bit about looking at the numbers for future guidance and a possible stop in the future rate hikes. The stock market will generally go up on that kind of talk by the Fed chair.
From where shall i get forex (foreign exchange market) rates?
I do agree that for getting latest FOREX market rates you can turn to this website http://www.xe.com
But the actual rates for transacting in FOREX are different depending on the transaction, i.e. Inward/outward cheque remittance, inward/outward electronic remittance, cash remittance, etc.
For all practical purposes (meaning if you really want to transact in forex) you will obviously have to refer to the bank outside your house! Since HDFC Bank has a great presence throughout India, I, for one refer to this bank’s website for daily FOREX rates. The bank displays the practical rates at which you will be able to transact. The website is
Specifically dont forget to read the meaning of abbreviations at the bottom of the page.
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