In this article of My Economy Guide , we will cover the concepts of foreign exchange , appreciation and preference , interest and inflation , relative income and speculation . This article will help you understand the economy and exchange rates.
First, let us briefly define the exchange rate. The exchange rate is the current price of one country currency compared to another country currency. When a currency is converted into another foreign currency, there is a price. The price to be paid is the exchange rate.
We have described in detail the role played by supply and demand in determining the price of a product in the market . Supply and demand play a role in the determination of the price of foreign exchange as in the pricing of the crop grown in the field.
The largest market in the world is the foreign exchange market. Since exchange rates are determined in this market, it is very important for us. The money in this market is roughly one quadrillion dollars. A significant portion of the trade here is made in US Dollars. The British, Japanese and Americans influence this huge market. There are many players in the foreign exchange market. Let’s take a closer look at these players.
- Banks are the most important players in the foreign exchange market. Banks that want to serve both personal and corporate customers need foreign currency.
- Central Banks take part in this market in order to protect the currency of their country, to manipulate exchange rates and to regulate the economic imbalances of their countries.
- Speculators are those who make profit in this market by making use of price differences to their advantage.
We stated that supply and demand have an impact on the determination of exchange rates. Increasing exchange rates are an attractive factor for people to break their currencies. In this case, the buyers become more reluctant. These basic events experienced in the increase of the exchange rate become the opposite with the fall of the exchange rate. Changes in exchange rates can be a very destructive factor for businesses, companies and even the national economies. For this reason, politicians and economists should approach foreign currency and exchange rates very carefully for the national economy. Now let’s look at the concepts that affect exchange rates.
LIKE AND CHOOSE
As consumers like and prefer imported goods, exchange rates change. appreciation of people living in Turkey to products manufactured in China are imported goods coming as I heard this is more preferable, and thus increase the demand for the Chinese yuan. The increase in the demand of the Yuan causes the appreciation of the Yuan and the depreciation of the Turkish Lira as a result of supply and demand laws.The appreciation of a foreign currency, on the other hand, causes the cost of the imported products to be expensive, thus reducing the preferability of the product.
INTEREST RATES AND INFLATION
An important factor affecting the foreign exchange market is the changes in real interest rates. Variable interest rates can create large and sudden fluctuations in exchange rates. People who want to use their money with savings prefer places where higher interest rates apply. Yet Turkey narration and let us out of China. Normal and equal conditions for countries that want to use If we accept that in order to save the money that is found in high interest investors choose Turkey. Because investors hoping to make more savings, and increased demand in Turkey to Turkish Lira supply Yuan. As a result, the Lira gains value and the Yuan depreciates.Inflation encourages people to convert their money into other currencies. People who want to protect their money against inflation can escape the danger of inflation by using another currency. This situation causes the currency of the inflationed country to depreciate in the foreign exchange market.
NISPİ INCOME AND SPECIFICATION
If the income of a country increases more than that of another country, the currency of the country where the big increase is experienced will lose value. At first glance this when bedtime logic again examine the example of Turkey and China. According to the investment income and economic moves by Turkey to China I think is much more increase. revenue growth experienced in Turkey to more people spending that leads to an increase of imports from China. In this case, the demand for the Yuan and the supply of the Lira will increase. The result of these increases is the depreciation of the Turkish Lira and the appreciation of the Chinese Yuan.Persons or institutions that try to gain from exchange rates cause speculation in exchange rates. Speculation appears to be as risky as gambling, but speculators have fulfilled an important economic task of carrying currency risk. A speculator who predicts that interest rates will increase faster in another country transfers his money to this country and hopes to get the expected result and earn more. This movement is simply an example of speculation. It is also very profitable for speculators to speculate.