The currency markets are the markets in which the currencies of different countries are bought and sold, the exchange rate is the price of one currency expressed in another. So when we read that the exchange rate of the Euro against the dollar (€ / $) is 1.10 it means that with one Euro we can acquire 1.10 dollars. We can also express the exchange rate upside down, that is, dollar/Euro ($ / €), which in this case would be 0.91, that is, with a dollar you can buy 0.91 euros. (€ / $) is 1.10 it means that with one Euro we can acquire 1.10 dollars. We can also express the exchange rate upside down, that is, dollar/Euro ((€ / $), which in this case would be 0.91, that is, with a dollar you can buy 0.91 euros.
Type Of Market Change
The market exchange rate of one currency over another varies according to the law of supply and demand, there are two possibilities: that one currency appreciates with respect to another or that it depreciates appreciation. When a currency (like a commodity) is scarce increases in price (it is appreciated), either because it is very demanded or because there is little compared with other currencies. For example, an operation increases the quantity offered of dollars, the exchange rate of the dollar against the Euro ($ / €) decreases, since to buy a US dollar you need fewer euros. Or what is the same, the exchange rate of the Euro against the dollar increases, because with no Euro we can buy more dollars
Demand For Currency In The International Market
The main reasons why some countries demand more or less foreign currency are:
Exports or imports of goods and services, It is the exporter who sets the currency in which an international transaction is made, usually his own or the American dollar. For example, the countries of the Eurozone, including Spain, will demand payment in euros when they act as exporters. As a result, buyers will demand euros in the currency market to meet the payment, which will cause an increase in the exchange rate of the Euro in relation to other currencies. When importing happens just the opposite and the exchange rate will decrease in relation to the currency of the country that is required to perform the import.
The inflation rate, if the inflation rate rises in one country and that of the others, prices increase and exports decrease, which causes a lower demand for the currency of the country in question. On the other hand, imports will be higher, since it will be cheaper to buy in other countries than their own, as to buy you have to offer the national currency, it will lower your exchange rate in relation to the currencies that are demanded
The interest rate the price of money is always associated with a currency. If the interest rate that financial intermediaries pay for deposits in a certain currency increases, that currency will be more attractive in the eyes of foreign investors, which will increase their demand in such a way that the value rises and consequently decreases their rate of interest, change, the forecasts for appreciation and depreciation