Real Factors That Determine The Value of Currency ( 2 )

Written by : NGDlover



On previous pages, I have explained factors such as Balance of Trade And Investment, Politics, Foreign Countries Situation, and Entitlements, here is the rest of the pages. Hope you get lots of benefit inside, please have a happy read....



Economic Laws (Supply and Demand)"

18. Demand - A big foreign investment is usually come together with changing in foreign currency exchange. So, if an investor willing to build an investment project to one country, they would seek for your currency to pay expenses, then its currency rise up. There is a special situation for some strong currencies such as Dollar, since this strong currency is used by other country as they currency, the physic of the Dollar is become an investment itself.

19. Supply - Despite of the demand above, when a government print more currencies to fulfil the need of money, the value of the currency will fall down. Each new printed is valued less than old one, more over if not followed by rising their reserves. In practice, This is one of the inflation factor, and the openness of the government and central bank is needed in this case, due to difficult to measure.

20. Consumptions : In the crisis era like today, an increase in the currency's value, like in Japan today, not always drive the people's consumption up, and vice versa.
But in every celebration days or holydays, Peoples consumption will always higher than other days. This consumption's increase will drive the inflation up and drop the value of currency down. Even so, higher consumption is not always bad, a negative or less savings country like USA deserve their strong economy by that way. More over, if consumer savings is combined with high export level, It will drive to the strong and high value of currency.
So, it is very important to consider short and long impact of goverment policy and regulation as well as trend consumption in primary and secondary consumer goods like housing, oil and gas, foods, textile, etc, in relation with the value of currencies.

21. Consumer savings: While you save your money, you will contribute to the national reserve even in a little percentage. But too little spending can also contribute to the decrease value of currency, since this will impact to the producer. They needs their goods sole to continuate even to grow their company. So, I think the best way is to keep your savings and spendings in balance with your national production, while you reach the higher export level.

22. Inflation: Inflation is a hidden thief. A kind of thief that directly stole our value of money to buy or to cost anything. Any news on inflation will derive our value of currency. High inflation or even hyper inflation will push the central banks or the goverment to go to the radical ways like cutting budget, cutting the value of the currency, or issue higher denomination currencies, etc.

23. Foreign country's inflation: Inflation that occurs in foreign country will make our currency value stronger and allowing us as a consumer to purchase the same amount or to purchase more of the same goods.

Industry and economic indicators

24. Manufacture: Businessman in industries area will always seek for cheaper expense and cost in doing their production. A strong currency will make them harder to compete against foreign industries. Thus, changing low or strong in manufacture growth is an indicator to value the health of the nations and the currency itself. It also describe the export level undirectly.

25. Labour:
> Employment: If employment in the country is growing, it will create a stronger currency and attract more investors, as it is a good indicator for economy health and vice versa. The government receive income tax's revenue that could help with the deficit of their national budget.
> Entrepreneurship: Entrepreneurship is in line with the employment growth. It both creates attractive opportunities to invest supporting a stronger dollar, which in turn will increase the value of currency.
> Outsourcing: Outsourcing is an attractive way for industries to reduce their expense or their complexity in doing production. It makes them more stronger to face the competition. But in the contrary of both employment and entrepreneurship factors, outsourcing will create a trade deficit and causes employment to suffer, then more outsourcing will make the value of currency down.
> Wage: A low wage level will attract investors to put their money in manufacture. A good example of the effect of wage level is happening in China. This nation boost their economy by low level of wage and many other cheapest factors.

26. Capital Market:
>The currency will strongly affected by the bearish or bullish of capital market. When Bearish markets happen, investor will suffer from falling values of their portfolios. The way to solve it by diversify or liquidate their portfolios will result in loss their money. In the contrary, when bullish market condition happen, a strong market values will creating profits that attract new investors and encourage current investors to put more money. But it also can affect the currency fall when it corrects itself as the investors will pull out their money and go to other bullish market.

Climatic And Geological Factors

27. Many Industries influenced by climatic (weather) and geological factors. FActors such as floods, earthquake, drought, or hurricane are taken to be consideration. How frequent this factors occur, how is the government responsibility to handle it, is it a tourist destination ? and many similar questions will come up when analyze this factors. In farming industries, bad weather will result in unfavorable farming conditions. It could slow their crops production and force grocers to turn to other countries to satisfy the needs of the market. Further, it will drive to trade deficit and weaken the currency.

28. Unusual Weather: Unusual cold winter or hot summer both can create a strain in peoples production and cause a rise in energy costs, and since most of countries is a consumers in energy natural resources, this factors will suck the national reserves and in turn will decrease the value of currency.

30. Natural disasters: A country that face the natural disasters like hurricane or earthquake or tsunami, will have to work to repair damage and spend national budget on relief and rebuilding their location. This will hurt their currency's value. Article idea come from here

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