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what are the factors that influence foreign exchange rates of a currency ?

ANSWER TO THE ABOVE QUESTION First thing to understand about foreign exchange rate is it is always measured in couples of curencies like Rupee vs Dolar or Dollar vs Pound, etc. The exchange rate is calculated measuring different parameters in the two countries to which the currency couples belong, like for Rupee vs Dollar we compare the parameters in India and US. [b]There may many factors that afffect the foreign exchange rate of a currency, but below are the important factors.[/b] [b]Interest rates[/b] The Intrest rate fixed by the country's Central Bank in both countries. Higher the intrest rate higher the value as more investors would like to put money in those banks to get more intrests. But if the intrest rates are rigged by the cetral banks of the countries regularly, it can havea negetive affect on currency value. [b]Inflation rates[/b] Higher the inflation rate , lower the value of currency. The quantity of goods you can but in boath countries is for same amount of currency is determined by rate of inflation in the country. Higher inflation in India means you can buy lesser number of goods for 1000rs and lower inflation in US means you can buy relatively higher number of goods for 1000$ in comparision to what you get for 1000rs in India. [b]Current account status[/b] If the current account status is positive or relatively +VE to the other currency, then the value of currency is high Political conditions A politically stable country draws more investors and demand for currency increases and so does the value of currency. Currencies in high demand always have higher value.

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