The value of one currency to another keeps changing due to the forces of demand and supply. So it is safe to say that a currencies value is not influenced by one single force, but by several. These forces generally fall into three categories: Market Psychology, Economic Factors and Political Conditions. “( http://paternalistic. Com) Market Psychology This is the most difficult aspect of the other forces. It is difficult to comprehend, anticipate or even to adhere to for many people. It implements the psychological effects that are made on the currency pricing system. It is hard to get hold off as it does not have any financial statements or central bank policy decisions.
Economic factors * Economic policy: These are set by government fiscal/ monetary policy which is controlled by the government and has a major effect on the impact of the changes in * Economic conditions: Economic conditions including inflation levels and currency. Trends * Economic growth and health: Things such as GAP and other factors that effect the currency pricing. Government budgets and deficits: These are the factors that are based on the governmental control on the budgets and other financial related aspects.
Political Factors * Internal and international political factors can affect currency prices in the currency market. * Political instability can have an effect on the economy. * Political relations between two nations can have an effect on the currency values of those two countries. * Elections and shift in ruling party These factors have an influence on the currency pricing. This can lead to many variations in businesses that involves the use of both currencies and even when an individual chooses to buy foreign currency.
This can cause an imbalance in many markets; the owner should know when to sell and when to buy currency. In conclusion, the currency risk measurement should be doing effectively in order to avoid unexpected changes and understand the value of the currency in hand and the potential currency to be bought in the market.