Exchange rate is the rate at which the currencies are exchanged in the market of FX India. There are many theories related with exchange rate. The theories are followed in order to determine the value of exchange rate. The exchange rates can be classified in to various categories depending on their features and significance. The currency trading is impossible in the market of FX India without exchange rate.
Law Based on One Price
In most of the competitive markets, the transportation cost is not considered as a factor in the trade and it is ignored. The price of a particular commodity is same in different countries when the price of the commodity is determined on the same currency.
Effects of Interest Rates
The capital that is invested in the market of FX India flows freely and at a certain point the exchange rates become equal and stable.
Theory Based on Forces Related with Supply & Demand
The forces on supply and demand are helpful in determining the exchange rate that is concerned with the currency pair comprising of Euro and USD. There are various factors that influence the forces related with supply and demand and these forces affects the exchange rates.
Theory Based on Business Environment in FX India
Indicators that show positive trend in any of the currency is helpful in increasing the demand for these currencies as the investments in that particular currency increases drastically. As a result of all this the exchange rate of the currency increases.
Stock market has a greater impact over the exchange rates of the currencies. The stock market indicates the current status that exists in the market according to which the exchange rate of the currency increases or decreases.
The exchange rates of the currencies are influenced by the political factors that exist in its corresponding country. Political instabilities, civil wars and such things may lead to the decrease in the exchange rate of the currency as these factors have much role making the economy of the country dull.
Another factor that can influence the exchange rate of a currency is the economic data that is gathered from the economy of the respective country. The economic data comprises of labor reports, CPI, PPI, GDP, industrial production, international trade, productivity, consumer confidence and so on. All these data has the capability to influence the exchange rate concerned with the currency of that country. Confidence that is concerned about the currency is a greater influence over the exchange rate. The decisions related with trading are done based on the expectations that are made about the future trend of the currency. This is for the purpose of predictions of the future trend of the currencies you need to make use of technical analysis. In the technical analysis historic data is made used to make predictions. The major tools in technical analysis are charts and other types of indicators.
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