Investment Management In Forex Market

Pin It

The foreign exchange market with a daily business of UD$4 million has many players. They include Non-bank Foreign Exchange Companies, Central banks, Investment management firms, Banks, Retail foreign exchange brokers, Commercial companies, Hedge funds as speculators and Money Transfer or Remittance Companies. Various economic factors will decide the value of money which in turn influences the rate at which that currency is traded with another currency. The economic policy of the government as well as its central bank will influence the value of its currency. The budget of the government will decide its spending. If the budget is deficit, it will have a negative effect on the value of the currency. The monetary policy of the country decides the money supply and the interest rates. This will decide the cost of the money.

Goods and services are traded between countries. If the demand of goods and services from a country increases, there is an increase of export from that country. This will in turn increase the demand of the currency of that country to pay for the exports. The exchange rate of this currency increases in the forex market. The currency of a country becomes stronger with trade surplus and alternatively faces a downward push with trade deficit. The inflation rate of a country similarly exerts influence. When the inflation rate is high, the consumption lowers with the demand for goods and services declining with the lowering of purchasing capacity of its citizens. The value of the currency is pulled down. This will also influence the exchange rate of the currency negatively.

The forex trade strategy is to be based on the trends in the exchange rate of the currency in the forex market. In addition, economic factors influence which way the exchange rate goes. So too the political factors and the general economic health of the country influence the way the exchange rates of that currency behaves.

The economic health of a country is reflected in its gross domestic product (GDP), employment levels, utilization of its production capacity and its retail sales amongst others. The currency gets a push up with increase in productivity of that country. The value of the currency increases with the improvement in the health of the economy of that country. The currency exchange rate is also impacted by political factors. The currency is pushed down with political upheavals, financial instability or unstable government all of which leads to political instability.

Leave a Reply

*