How are Currency Exchange Rates Set?
The currency exchange market is often said to be the largest investment market in the world. However, many people do not know how the process of determining the value of one currency in relation to another takes place. Essentially, currency exchange rates are set based on several basic factors that are consistently applied in all situations, as well as some factors that may vary, depending on the circumstances. The fixed factors that impact currency exchange rates are generally identified as inflation, interest rates, and trade value. Trade value has to do with the ratio of business and service trading that takes place between the two countries that issue the currency. In the event that one country purchases more goods and services from a given country than it imports to that same country, the value of the each country will reflect that difference. In effect, the country that gains the most from the sale of goods and services between the two countries will have a currency that is rated
