SPOILER ALERT!
Considerations To Know About Exchange Rate
When talking about foreign exchange rates, what most people imagine is the exchange rate between two currencies. But, there are different things that are included in this market rate. In economics, an exchange rate suggests the speed where one particular currency is being exchanged with another. More to the point, it is also a measure of how much one country's currency is worth in contrast with another nation's currency. For example, an interbank exchange rate between a number of banks in the united states and Japan indicates the dollar exchange rates have been just two US dollars for every Japanese yen.
In economic conditions, the exchange rate between two currencies is very important. But, exchange rate could only be part of the whole picture. That is because if the house currency increases, then you would also expect the overseas currency to rise. However, this isn't necessarily the case. For instance, once the Chinese currency was weakening against the US dollar, many business companies, particularly those manufacturing products for the western market, were concerned that their business might suffer because the orders from their clients could fall.
To avoid this kind of circumstance, financial institutions often use foreign exchange prices as a foundation for their decisions. And it worked, for some time. However, if the situation changed and the Chinese economy started to rebound, their business began to flourish. At precisely the exact same time, the other countries which have a significant trade surplus with China also became interested in buying the Chinese market. This way, foreign direct investment (FDI) in China increased as more foreign firms established operations in China.
In addition to this, there's another side of this story as well. If the currency rate were to go up, the money of the nation which has a surplus across the other nation would love. And this might have very negative consequences for the country having the deficit. One example of this would be the American economy, which was previously a high-acidity country and now has a rather substantial foreign debt.
buy naira in the US could happen in the European Union (EU), the biggest common trading currency in the world. If the euro strengthened versus the dollar, then this would obviously benefit European companies that operate in the United States. But if the euro weakened versus the dollar, then this could definitely have a negative impact on European businesses that operate in the USA. The outcome would be higher imports of products and services at the U.S., lower exports to Europe and possibly lower general economic growth.
Some analysts believe that the European Central Bank (ECB) might adhere to a fixed exchange rate regime for many decades. But this remains to be seen. For the time being, the sensible strategy is to continue to let the values of the various currencies move within their free markets.
In economic conditions, the exchange rate between two currencies is very important. But, exchange rate could only be part of the whole picture. That is because if the house currency increases, then you would also expect the overseas currency to rise. However, this isn't necessarily the case. For instance, once the Chinese currency was weakening against the US dollar, many business companies, particularly those manufacturing products for the western market, were concerned that their business might suffer because the orders from their clients could fall.
To avoid this kind of circumstance, financial institutions often use foreign exchange prices as a foundation for their decisions. And it worked, for some time. However, if the situation changed and the Chinese economy started to rebound, their business began to flourish. At precisely the exact same time, the other countries which have a significant trade surplus with China also became interested in buying the Chinese market. This way, foreign direct investment (FDI) in China increased as more foreign firms established operations in China.
In addition to this, there's another side of this story as well. If the currency rate were to go up, the money of the nation which has a surplus across the other nation would love. And this might have very negative consequences for the country having the deficit. One example of this would be the American economy, which was previously a high-acidity country and now has a rather substantial foreign debt.
buy naira in the US could happen in the European Union (EU), the biggest common trading currency in the world. If the euro strengthened versus the dollar, then this would obviously benefit European companies that operate in the United States. But if the euro weakened versus the dollar, then this could definitely have a negative impact on European businesses that operate in the USA. The outcome would be higher imports of products and services at the U.S., lower exports to Europe and possibly lower general economic growth.
Some analysts believe that the European Central Bank (ECB) might adhere to a fixed exchange rate regime for many decades. But this remains to be seen. For the time being, the sensible strategy is to continue to let the values of the various currencies move within their free markets.
