Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

5 Effects Of Currency Fluctuations On The Economy

Economics / Economic Theory May 21, 2018 - 05:25 AM GMT

By: Submissions

Economics

Currency fluctuations are some of the most analyzed aspects of any economy. Slight changes in the value of a currency can send reverberations across the economy. In fact, some currency fluctuations levels can have drastic effects on the health of an economy. Markets like forex and other trading sectors are heavily reliant on how strong or weak a particular currency is. The strength of a currency can also determine how a particular country handles international trade. Indeed, five of the strongest currencies in the world are so influential in the world that many aspects of the global economy are almost tied to them. There are several effects of fluctuations of currencies. Below are some of the most important.




1. Changes the market competitiveness


Fluctuations in the currency either takes the form of a strong currency or a weak currency. When the currency becomes strong for an extended period of time, the economy can experience internal pressure. This can lead to dormancy and reduced competitiveness. These factors can in turn cause job losses and an overall economic slowdown. A weakened currency, on the other hand, might attract investment but leave the economy in a vulnerable position at the hands of big investors. In general, fluctuation currencies affect the competitiveness of the market and the vibrancy of the economy.

2. Changes in investment levels


A fluctuating currency can also affect investments in a major way. Both foreign direct investments and local business depend on a stable currency. An unpredictable currency is a cause of concern for investors especially those who might be looking for a long-term presence in the economy. While a weakened currency is usually a major pull for foreign investment, a currency that tends to change in value quickly has the opposite effect. All investors hope to gain profit after a certain amount of time. When the currency is changing so much, it becomes difficult to arrive at specific timeliness. Local business also suffers a lot under a fluctuating currency. Traders might tend to either hold on to their commodities or sell them at detrimental prices.

3. Creates volatility in the economy



With a lot of currency fluctuation, the market becomes highly unpredictable and both local and foreign trade is affected. The exchange of securities is especially affected since it mostly depends on the value of the currency. Volatility is not always bad, especially in currency exchange. Its effects can, however, be dire when measures are not taken to keep it under control. The economy can suffer a lot and the returns to investment can be lower due to higher risks.

4. Affects inflation


Inflation is the general price of goods in the market. Currency fluctuation can affect an economy in various degrees. Depending on the general trading patterns of an economy, currency fluctuation can lead to either minimal levels of inflation or huge levels of inflation. Most countries that have high levels of local production and consumption are usually not affected by inflation a lot when the currency fluctuates. Economies that rely on imports, on the other hand, can experience huge inflation levels when the currency fluctuates. This is especially in cases where the fluctuation leads to a devalued currency. The resulting inflation levels can affect other areas of the economy and take a long time to correct.

5. Affects lending


Finally, changes in currency affect the interest rates as well as lending. The monetary policy of any economy depends on the exchange rates of the currency. Most central banks take a keen interest in the performance of both local currencies and foreign currencies. By observing the trends in the market, policy designers can be able to come up with policies that are good for the economy. If a currency is strong, the interest rates become high. High interest rates discourage lending and lead to a slowdown in the economy. A strong currency can thus force monetary policy formulators to come up with measures that could bring in more foreign currency.

Currency fluctuations happen due to the demand forces in the forex market. These fluctuations are thus natural and come as a result of the market. The fluctuations, however, have huge ramifications for the economy. Most aftereffects of currency fluctuations are not particularly bad but some can affect the economy immensely.

By Andrew Cioffi

© 2018 Copyright Andrew Cioffi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in