Why do currency rates fluctuate?
Day to day and even minute to minute, currency rates fluctuate. While this can be frustrating for a traveler or international business person, fluctuating rates are necessary and not without reason.Interest RatesInvestors are always on the lookout for high interest rates. When a country’s rate is high, these investors take advantage and put money into the country. As a result, that country’s currency experiences a demand and, likely, a value appreciation.Supply of MoneyThe amount of money in circulation–based in part on consumer spending and in part on central banks printing and thus increasing money supply–contributes to inflation. As a result, value depreciates and the value of the currency weakens.Trade BalanceImporting and exporting play a huge role in a country’s trade balance. When more product flows out of a country than in, the currency tends to appreciate as demand for it rises.Economic StimulationWhen a country’s economy fails (or is near failure), investors often choose to