Important Factors That Affects International Exchange Rates

International or foreign exchange rates is very crucial for a country as it helps them to determine the state of their economic health.

Speaking of exchange rates, it keeps on changing from time to time. Certain important factors affect exchange rates. In this post, we will tell you three of the most important factors that affect international exchange rates. If you are interested, then you can check out SGD to INR exchange rates.

What are the factors influencing exchange rates?

Here are some of the main factors that affect exchange rates.

Rates of inflation

Whenever there is inflation, the exchange rates in the market changes. A country that has a lower rate of inflation will always appreciate the value of its currency. That’s because the rates of services and goods increase slowly when there is lower inflation. On the other hand, a country with higher inflation will face depreciation in the value of their currency and as a result, the rates of goods and services will increase quickly.

The current account of the country

The current account of the country reflects the earnings and trade balance on foreign investment. It shows the number of transactions carried on by a country. This includes imports, exports, debts, etc. when a country spends more and the current account depreciates, it leads to depreciation. This, as a result, affects the domestic exchange rate of the country.

Government debts

By government debts, we mean national or public debt by the central government. A country that has government debt faces difficulties in acquiring foreign capital, due to which inflation takes place. Not just that, but foreign investors will start selling their bonds in the open market if they see the country is in debt. This automatically will decrease the exchange rates in the international market.

Exchange rates between countries is a delicate thing. Even a slight change in the contributing factors can bring in a major fluctuation. This is why every country tries its best to curb down their rate of inflation as it is never good for them.