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Currency exchange
Have you ever asked yourself hat does the foreign currency exchange represent or do you only see it as a form to make money? So why is it there that much hysteria when in the market the currency exchange tends to raise or get low? What is in game when someone says that the Euro won the dollar or that the Central banks are going to cut the interest rates? Sometimes, I listen someone speaking about the curve of Philips? Although at first sight so many questions may crash in a glance, you should continue reading, because the answers that we will provide in the following lines will be of much utility for your economic future.
The volume of currency exchange is considered in market as one of the most influential thermometers because it determines the state of the economy, that is why when the local currency fluctuates continuously, in major or minor degree, in front of the currency of reference, the investors are aware because these movements are signals that indicate that there will be changes of conjuncture at local or world-wide level.
The currency exchange has become one of the most popular forms to make money through Internet, nevertheless many of the beginners who just start to take their first steps in the market do not consider that behind the platform that shows the increase or decrease of the pairs, there is a set of variables that affect constantly in the price that they are going to pay by one or more currencies.
The actual distance that exists in the price of the Euro with respect to the dollar stimulated the currency exchange and also it is one of the subjects that but occupied more space in the covers of audio-visual means and of communication. This subject has been reinforced after the crisis and it was definitively installed in August of 2007. The cessation of payments on the part of those who obtained loans to buy houses unleash into a financial crisis in the payment chains and obligations that the houses of loans have acquired from the increase in the demand of credits.
How does this crisis affect in the currency exchange? The first symptom felt the drop of the stock-market values of Wall Street, soon this epidemic situation was transmitted to everybody and develop a financial crisis to a world-wide level. The financial crisis affected the price of the foreign currency exchange, especially to the dollar that fell down abruptly in front its pairs like the Euro, pound sterling, but also produced a height in the currency exchange.
The crisis help to change the board in the matter of the price of foreign currency exchange, since the new conditions of the market every currency rounded up in comparison with the dollar and the Euro, step to dominate the ranking of the most quoted currencies. Today, the world and the investors are immersed in the dispute between the dollar and the Euro that threatens modifying the established canons in the currency exchange. The crisis prevails in a very different way the two actual powers, the United States and Europe. By such reason the positions that have taken in economic matter were very different.
During the Fifties a mathematician developed a theory that afterwards will get known as the Curve of Philips. This hypothesis at the moment can be applied to the scene that is considered in winch the inflation, the recession and the price of foreign currency exchange agree with the postulates that became famous in Great Britain in the middle of the XX century.
Basically this theory affirms that when the rates of unemployment are high, the inflation is low and vice versa, when the inflation is high there is a low unemployment rate. These two variables are intimately related to the interest rates that are imposed by the monetary authority to determine the price of foreign currency exchange, which directly influence in the currency exchange. How does it work? In order to draw this situation we will put a very close example that you probably have heard in some newspaper. How come the United States cuts the interest rates without mattering what happens with the foreign currency exchange with respect to |he dollar? Mainly because this country is about to enter in a recession and this has affected the demand level and therefore it decreased the level of production and incentive the growth of unemployment. This is why the FED reduces the rates so that the money is put at disposition of banks to a smaller cost so it arrives cheap to the public and in this way it stimulates the demand without thinking about the inflationary pressures.
Although many economists confirm that the currency exchange is regulated by the simple game of the supply and the demand, the reality indicates that the macro-economic factors play a determining role in the price and exchange of currency. These are some of the reasons for which the movements in the price of foreign currency exchange take place and that is soon reflected in the behavior adopted by the investors in the currency exchange. That is why if you knew to process all the provided information the currency market would be a whole procedure.