Price increase refers to the general increase in the overall price level. Rising prices are one of the manifestations of inflation. The rise in the price of some commodities, such as beef or rent, is not inflation. Because the prices of some commodities go up, while the prices of other commodities may go down, the two cancel each other out.
There are many factors that cause exchange rate changes, such as trade and inflation. Inflation refers to the phenomenon that the circulation of paper money exceeds the actual amount of money needed in circulation, which causes the devaluation of paper money and the rise of prices. And rising prices refer to the upward movement of prices.
Factors affecting currency exchange rate
(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 remained strong for a long time. This is a very special situation. The reason is that the US dollar is the world currency, accounting for 39.35% of the global payment system (data of 2065438+June 2008). The huge demand for the dollar has led to a high exchange rate of the dollar, which is of course inseparable from the strong strength of the United States.
(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.