Exchange rate, also known as foreign exchange rate, foreign exchange rate or foreign exchange market, refers to the ratio or price of one country's currency to another country's currency or the price of another country's currency expressed in one country's currency. Exchange rate changes have a direct regulatory effect on a country's import and export trade. Under certain conditions, the devaluation of the local currency, that is, lowering the exchange rate, will promote exports and restrict imports; On the other hand, the appreciation of the local currency, that is, the rise of the exchange rate, plays a role in restricting exports and promoting imports. The factors affecting the exchange rate are as follows:
(1) Balance of payments. The most important factor is that if a country has a surplus in international payments, its foreign exchange income exceeds its foreign exchange expenditure, its foreign exchange reserves increase, and its foreign exchange supply exceeds its foreign exchange demand, while foreign demand for its currency increases, the foreign exchange rate declines and its currency appreciates. If it is a deficit; otherwise. It should be noted that the huge trade deficit of the United States is increasing, but the dollar has maintained a long-term strength. This is a very special situation, and it is also a topic that many professionals are discussing.
(2) Inflation rate. Every country has inflation. If its inflation rate is higher than that of foreign countries, its currency will depreciate and the foreign exchange rate will rise.
(3) interest rate. The influence of interest rate level on foreign exchange rate is that short-term capital flow leads to the change of foreign exchange demand through the difference of interest rate level in different countries. If a country's interest rate rises, foreign demand for its currency increases, its currency appreciates and its exchange rate falls. Of course, the influence of interest rate on capital flow needs to consider the influence of forward exchange rate. Only when interest rate changes offset the adverse changes in the future exchange rate can capital flow internationally.
(4) Economic growth rate. If a country's economic growth rate is high, its currency exchange rate is high.
(5) fiscal deficit. If a country has a huge budget deficit, its currency exchange rate will fall.
(6) foreign exchange reserves. If a country's foreign exchange reserves are high, its currency exchange rate will rise.
(7) psychological expectations of investors. The psychological expectation of investors is particularly prominent in the international financial market. According to exchange psychology, foreign exchange rate is the concentrated expression of subjective psychological evaluation of money by both foreign exchange supply and demand sides. If the evaluation is high and confidence is strong, the currency will appreciate. This theory plays a vital role in explaining countless short-term or extremely short-term exchange rate fluctuations.
(8) The influence of exchange rate policies of various countries.