Professional Documents
Culture Documents
Product
Why does exchange rate
change?
B
y
Chaichon Chaiyasat (Alex)
1006 Submitted to
The diagram above suggests that the demand for Thai Baht is
high, because Singapore has more imports than, which
according to the law of economics high demand makes the
Baht become more valuable compared to Singapores
currency. If this keeps going on for a long period of time, then
Thailand might stop purchasing imports from the US and the
exchange rate will become normal again.
Public Debt
Countries that incur big deficit-financing
usually are not liked by foreign investors,
because such countries tend to have high
inflation.
How? When a country borrowed money
from another country, they will wedge the
money into the economy and cause the
supply of money to go up. The uprising of
money supply will trigger economic
expansion and economic expansion cause
inflation. Inflation, as has been said, shift
the currency value of the country.
Public Debt
Another way which this might have
impact on exchange rate is: In order to
solve the deficit problem, the
government might increase the money
supply in the nations economy with,
unavoidably, causing inflation and the
currencys value will be shifted.
In addition, the country may cheapen
its currencys value to make good deals
in foreign-trade affairs in order to get
rid of the debt.
Political Stability and Economic
Performance
Foreign investors do not like
countries with unstable politics
and economic performance. It is
investors predicting where should
they invest their capital in? And,
of course, they will want to invest
in the countries which are SAFE
from all the scenarios described
prior to this.
Speculation
Ifthe speculators predict that the
currencys value will rise in the
near future, they will likely to
demand for the countrys
currency and higher demand will
make higher currencys value.
And in contrast, if the demand is
low, then the currencys value
will become normal.
Competitiveness
Ifa countrys goods or services
has become likable by other
countries. It is likely that they will
compete for the goods and
services, in other words, the
demand for the goods and
services will rise.
Economic Expansion and
Economic Recession
One of the most basic knowledge
in economics is Economic
expansion and Economic
Recession.
Absolutely, these two economic
scenarios have impact on a
countrys currency value.
This process will include the 2
major factors which have impact
on currency value: Inflation,
Economic Expansion &
Recession
When a country incurs economic
recession, foreign investors will
be lured away, which means the
demand for the countrys
currency will be low. This makes
the countrys currency become
low.
Economic Expansion and
Recession
Incontrast, in economic
expansion, foreign capitals like to
come in and invest in it, which
makes the demand for the
countrys currency become high.
And this make the countrys
currency become more valuable.