Avila Howell posted an update 1 week, 5 days ago
What’s Exchange Rate? Exchange rate is a typical measurement that requires the evaluation of a country’s currency against another nation’s currency. In international finance, a market rate is the change of the exchange rates between two nations. It’s also known as the average value of one country’s currency compared to the other nation’s currency. It is a significant economic parameter used by banks and other financial institutions that trade currency.
The United States Dollar and the British Pound Sterling are two common currencies traded on the Foreign Exchange Market. Because of the wonderful demand for both of these currencies, the exchange rates between them are extremely volatile. This leads to drastic changes in the value of the two currencies. The changes in the exchange rates between the two currencies are largely affected by economic factors, namely:
The U.S dollar and the British pound Sterling are the most frequently traded foreign exchange rates. Most dealers purchase U.S. dollars with the goal of selling them back into the British pound sterling at a subsequent date. On the flip side, they may purchase a British pound with the aim of trading it into the U.S. dollar.
euro exchange rate in nigeria today of foreign exchange rates between the 2 currencies is determined by these factors:
The annual average currency exchange rates are highly influenced by changes in the foreign exchange rates between various nations. By way of example, a nation which has a strong economy is very likely to have higher exchange rates compared to a nation with a weak market. Moreover, the strength of a nation’s economy is positively related to its trade surplus, the gap between the value of a country’s export and import. A country that has a surplus of export compared to its import bill is in the positive position, even though a nation which has a shortage of import in contrast to its export bill is in the adverse position.
In addition, the strength of the U.S dollar is positively about the interest rate that banks charge for loans. The higher the exchange rate, the greater will be the amount that banks charge for loans. The lower the rate of interest, the lesser will be the amount that banks charge for loans. This is another factor that influences the currency prices.
The degree of inflation also affects the foreign exchange rate. High levels of inflation cause price increases for virtually all products. Hence, the nominal exchange rate has an essential role in fixing the inflationary or deflationary impact on the real exchange rate. The nominal exchange rate reflects fluctuations in the amount of inflation at a country.
One can determine the value of a regional currency using two types of measurement methods: the fundamental evaluation system along with the geographical price system. The former determines the worth of the national financial unit against the foreign currencies and the latter determines the worth of their national financial unit against the other overseas currencies. The fundamental evaluation uses the costs of the national units of a nation while the geographic cost system variables in the cost levels of the traded foreign currencies. The other important kind of measurement systems used in determining the currency rate would be the balance-of-payments system and also the official exchange rate established by the central bank of a nation.
A key use of the currency rate is to ascertain the value of one currency against the other. For instance, if you need to compare the value of British pounds from American dollars, it is possible to do this by comparing the values of the British lbs together with the equilibrium of the British pound on the date when the British market became highly determined by the American dollar. This is a very common example of the way the exchange rate assists in deciding the value of a specific currency.