Economic and financial factors can affect the value of a country's currency in both the short-term and the long-term. Explain the impact on the currency's value of the following factors:
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One of the tenants of effective financial management is diversification. Investors who want to grow their portfolios often invest in foreign markets as one method of diversification. An important factor to consider when investing in intentional markets is that the currency exchange rate can dramatically alter your gains or losses, in terms of value. Investors interested in foreign markets follow the exchange rates closely to monitor the best circumstances for converting funds and investing internationally.
Macroeconomic: The mechanics of a currency trade are nearly identical to those in other markets. While trading in foreign currencies carries a high level of risk, those seeking to invest in foreign markets must understand the fluctuations.
The foreign exchange market does differ from traditional markets in a few ways:
- Because we are trading in currency, the bulk of the market is liquid. ...
This solution explains the impact on the currency's value of the following factors: macroeconomic, sociopolitical, fundamental and speculative.