The forecasting about the movements in the price of the currencies can be determined with the help of technical and fundamental analysis. The fundamental analysis is based on the various theoretical models for the determination of exchange rate and the influence of various economic factors on exchange rates of various currencies. The fx news assists in studying the fx rates and the movements. There are various theories that can determine the exchange rate of the currencies based on the various factors of consideration. The fundamentals related with economy are the financial factors, economic factors, political factors and also the crises. Economic factors are unique compared to other factors as there is always a prediction about the release of the economic factors. These factors can be found in FX News. The data related with economy will be released on the particular time and date as mentioned before.
Purchasing Power Parity and FX News
Purchasing – power parity is a kind of theory that can be made used for the purpose of determining the value of exchange rate. The two versions for the theory of purchasing – power parity are relative and absolute versions. Absolute version is a kind of version in which the exchange rate is equal to the ratio between the price levels of commodities of two different countries. This version can work only when the commodities in two countries have same value. Absolute version says that the trade barriers and transportation costs are not important but this is not true in reality as both these are very much important and takes value which are different in different parts of the world.
PPP Relative – Version
Percentage change that occurs with exchange rate from a particular time period is equal to the difference in the change in the percentage of domestic and foreign price – levels. FX News reveals all the various facts related with the prices of the commodities and the reasons for any fluctuations in the prices. The PPP that is of relative version is not free from any kind of problems. The main problem associated with this version is that it is a difficult process for determining the base period. Exchange rate on spot market is independent of the relative prices of domestic and foreign currencies.
Theory based on Elasticities
This theory is based on the price of exchange that helps in the determination of the exchange rate of the market. For a country to have a high trade balance and thereby increase in the exchange rate, exports in the country need to be increased. The increase in import can only result in the reduction of the exchange rate. An increase in the domestic income of a country can initiate in the increase in consumption of domestic as well as foreign goods and thus can result in the increase in demand of foreign currency. With the reduction in the value of foreign income, consumption of foreign as well as domestic goods get decreases and thereby leads to the reduction in the demand for the currency of that country. You can find out the value of a currency based on the details of other factors which are released in FX news.
Portfolio Balance – Approach
Demand for a currency increases when there is an increase in the demand of financial assets. This is the basic thing behind this theory.
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