The exchange of foreign currency is a very common investment. It is so common that I really saw many forex commercial seniors, even if they do not have much knowledge about foreign exchange. But to make a real investment instead of a bet, you must accompany you the basic information and knowledge of foreign currencies.
In fact, foreign exchange fluctuations can be affected by a number of factors. In the broadest sense, the economic situation of a country and its macroeconomic decisions have the greatest effect on its fluctuation of the currency. That’s why you find that analysts really know such economic, news and information statistics. The common indices you should be aware of including the Gross 9GNP national product), interest rates and the consumer price index, etc. With the understanding of this information, you can help you make judicious decisions in the forex trading market.
One way to study the trend of foreign exchange is to examine foreign revenues and foreign expenses incurred on foreign economic activities. Normally, the demand for a foreign currency is indicated by the largest amount of foreign expenses (than foreign revenues). As the currency fluctuates according to demand and supply of currencies, the foreign currency in this case is likely to assess in response to increased demand.
Another point to watch will be the national income. When people ‘revenues increase, they tend to spend more or are willing to spend more. As they spend more, it pushes the demand for local currency. As mentioned earlier, with the increase in demand, the local currency appreciates.
To be carefully, examining only the increase or decrease in national income can sometimes be misleading. You must explain on the actual factor that causes the increase or decrease in national income. For example, an increase is caused by policies or government demands and such policies may require significant foreign imports (additional to local supply), then foreign currency will likely appreciate even national income increases.
Inflation may also result in currency fluctuations. If there is a significant amount of free cash flow (in local currencies) on the market, the demand (to purchase products) of this currency is probably lower than that of the offer. Inflation occurs in this case. When inflation occurs, the price of the product begins to increase and purchasing power begins to decrease. In turn, the demand for local currency for internal consumption leads to the depreciation of local currency.