Currency rates are the result of demand and supply in brokerage. The demand and supply factors that exist in the market are always shifting and this means that the currency rates change with it while the brokers have to work with the new rates. The supply and demand of a currency is not affected by only one factor, but a number of factors which are responsible for the change in currency rates. As an economic measure, the currency rates are watched and analyzed keenly by governments as this not only affects the Foreign Exchange Market but also the economic state of a country.
Trading relations between countries are affected when currency rates change for example the exports of a country with a higher currency more expensive while the imports would become cheaper in foreign markets. Forex brokers also have to adjust with the change in rates in order to ensure that their clients do not incur losses. This is usually done through the advice they offer the traders in a bid to maximize their profits and minimize the risk of loss.
Factors That Affect Currency Rates In Brokerage
The economic factors that affect the currency rates mostly include the economic policies that are disseminated by the government and the central bank of the country. The policies are usually revealed when the economic reports of the government are brought to the limelight, together with other economic indicators. The government’s fiscal policy that is comprised of the budget and spending practices affects the rate the currency will have at a given time. These factors usually determine how the forex brokers will trade in ensuring no losses are incurred.
Political conditions such as upheavals and unrest directly affect how the brokers are going to trade due to the change in currency rates. The unrests can cause a currencies value to plummet against those from other countries. If a broker happens to be trading in a currency pairing consisting of one from country that is experiencing political upheavals, they will have to make the executive decision of reconsidering they choice to avoid client losses.
Terms of Trade
The terms of trade refer to the ratio that is there between there between the prices of the import and those of the exports, then combining it with that of the current accounting and that of any outstanding payments. These terms of trade are in most occasions responsible for the fluctuation of the exchange rate, in the event that the price of the exports rises. Forex brokers have always made it a habit to observe current trends in the terms of trade in order to know the possible affect this would have on the currency, and which ones to avoid.
Some nations, especially in developing countries, are known to incur large public debts in their quest to fund government projects. A country that has incurred large amounts of public dept experiences inflation frequently. Before carrying out any transactions forex brokers check the inflation rates of countries that are known to be in public dept and avoid doing business with them.
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