The Economics of Exchange Rates

Factors influencing Exchange Rates of Any Currency

A number of factors can affect exchange rate trends and volatility, but
broadly speaking the following represent the primary determinants of
exchange rate direction:

· economic growth rate differentials,
· interest rate differentials,
· balance-of-payments surplus or deficits,
· political issues,
· speculative flows or technical factors.

Given the complexity of these factors and the potential impact of
negative exchange rate movements (which often exceed 15% per
annum against the dollar) on business performance, prudent
businessmen should seek to lessen or eliminate the negatives of
foreign exchange volatility whenever possible. This can be achieved
by appropriate foreign exchange hedging.
Next time a discussion will be on different strategies for foreign exchange risk hedging; please do not miss make sure you visit this blog everyday