Hledat v komentářích
Investiční doporučení
Výsledky společností - ČR
Výsledky společností - Svět
IPO, M&A
Týdenní přehledy
 

Detail - články
Introduction to the Forex Market

Introduction to the Forex Market

24.08.2016 15:51
Autor: Redakce, Patria.cz

By Vojtěch Jirásek

The foreign exchange market had been the domain of large financial institutions, corporations or central banks. Internet enabled individuals/investors to buy and sell currencies easily with the click of a mouse. On one hand the forex market provides great opportunity for investors because of the extreme liquidity and the availability of high leverage, which led to rapid growth of the market in general. On the other hand in order to be successful, an investor must be familiarised and understand the reasons behind daily currency fluctuations. This is because the high leverage can not only accelerate large profits, but also mass losses.

There are 8 main causes of fluctuations in exchange rates, and most are related to the trading relationships between countries and rest are a response to the supply of and demand for international money transfers.

1) Inflation Rates:
A country with a lower inflation rates than another’s will often experience an appreciation (increase) in the value of its currency, due to the prices of goods and services increasing at a slower rate. The value of the increase in inflation (rise in domestic price level) is often accompanied by decreased interest rates, causing a fall in the internal purchasing power of money, and hence a fall in the exchange rate.

1
Market expected the European Central Bank to decrease interest rates, which resulted in depreciation of EUR by 400 points.

2) Monetary Policy (changes in interest rates):
Increase in interest rates cause a country’s currency to appreciate as they provide higher rates to lenders, thereby attracting more foreign capital, and leading to a rise in exchange rates of the country. The future predictions are also very important, for example if ECB is expected to decrease interest rates (possibly making them negative) euro will start to weaken and therefore will not profit its investors, who will want to get rid of it.
On the other hand low interest rates spur consumer spending and economic growth.

5
Market expected an increase of Fed key rate, resulting in appreciation of USD by 800 points.

3) Country’s Current Account:
The current account reflects balance of trade and earning of all foreign investment, consisting of total number of transactions including exports, imports, etc. The deficit in current account due to imports exceeding exports causes depreciating exchange rate value of its domestic currency.

4) Government Debt:
A country with high government debt is less likely to acquire foreign capital, leading to inflation. There is a greater likelihood of foreign investors selling their bonds in the open market if the market predicts government debt within a certain country. As a result, a decrease in the value of the county’s exchange rate will follow.

5) Terms of Trade:

Related to current account, the terms of trade is the ratio of export prices to import prices. The terms of trade are likely to improve, if exports prices rise at a greater rate than the import prices. This results in higher revenue and increased GDP, which causes a higher demand for the country’s currency and therefore an increase in its currency’s value, leading to an appreciation of exchange rate.

6) Political Stability & Performance:
A country with less risk for political turmoil is more attractive to foreign investors, as a result, drawing investment away from other countries with less political and economic stability. The increase in foreign capital leads to an appreciation in the value of its domestic currency.

7) Current state of the Economy:

When a country experiences recession, the central bank is likely to decrease interest rates to encourage consumers to lend. However this decreases its chances to acquire foreign capital. As a result, its currency is weakened in comparison to that of other countries, causing depreciation of the exchange rate.

8) Speculations:
If a country’s currency value is expected to rise, investors will demand more of that currency in order to make profit in the future. As a result the value of the currency will rise due to the increase in demand. This increase in currency value brings a rise in the exchange rate as well.

3
Speculators forecasted appreciation of GBP after British referendum (Brexit), the opposite result lead to a sharp depreciation of the British currency.

One the other hand, if the exact opposite happens and the future predictions are very negative then the demand of that particular currency will fall. This is what happened after Brexit, where a large number of investors very not certain about future and decided to sell their pounds. This later led to a further drop of the pound value.

In conclusion, good understanding of why and how these determinants lead to fluctuations of exchange rates can be vital for success in the Forex Market, as it enables investors to predict the future fluctuations as accurately as possible. However, there is always some extent of risk in Forex Market trading. Investors have to be really careful with choosing their next step in order to achieve the objective of maximizing profit.


Čtěte více:

Aktualizovaný investiční výhled Patria na rok 2016 - Měny
24.08.2016 16:00
Patria v úvodu týdne zveřejnila v rámci komplexního investičního servi...

Váš názor
Na tomto místě můžete zahájit diskusi. Zatím nebyl zadán žádný názor. Do diskuse mohou přispívat pouze přihlášení uživatelé (Přihlásit). Pokud nemáte účet, na který byste se mohli přihlásit, registrujte se zde.
Aktuální komentáře
14.10.2025
12:45BlackRock ve třetím čtvrtletí pod svou správu přilákal 205 miliard, pomáhá expanze na trhu privátních aktiv
11:45Čínská eskalace vrací trhy dolů, na programu výsledky velkých bank  
11:23FX Strategie: Eurodolar čeká na politické rozuzlení, koruna na globální impulzy  
10:45Prodeje Michelin v Severní Americe ztrácí trakci. Výhled sjíždí z plánované trasy, akcie odepisují 9 procent
10:29Londýnské trezory se stříbrem jsou pod náporem, cenu kovu to poslalo na historický rekord
9:53Čínsko-americký spor eskaluje. Dopadá na globální obchod
9:32Zájem o hypotéky dál roste. V září jejich objem stoupl o 14 procent
8:55Rozbřesk: Politický a rozpočtový chaos ve Francii. Pomohla by ECB se záchranou?
8:55Komerční banka, a.s.: Hlavní akcionáři KB k 30.9.2025
8:53Obchodní válka Čína-USA se prohlubuje, americký shutdown spěje do klíčového momentu a futures jsou v červeném  
6:05Dalio: Neudržitelné investiční a obchodní vztahy mezi USA a Čínou, investice od dluhopisů ke zlatu
13.10.2025
18:46Investiční šok
17:25PODCAST Týdenní výhled: Obchodní válka, rekordní zlato a start výsledkové sezony  
16:30OpenAI kvůli výrobě vlastních procesorů pro AI spojí síly s Broadcomem
16:05Bloomberg: Evropské automobilky jedou na půl plynu, v příštích letech ztratí miliony aut ve prospěch Číny
15:35MONETA Money Bank, a.s.: Oznámení k dluhopisům
14:55Medvěd Wilson: Trumpova cla překvapila trhy. S&P 500 může odepsat 11 procent  
13:58MONETA Money Bank, a.s.: Pozvánka na valnou hromadu
13:31Nobelovka za ekonomii míří letos trojici Mokyr, Aghion a Howitt za výzkum vlivu inovací na hospodářský růst
12:13Nervozita z obchodní války zvolna klesá a akcie se snaží zvedat  

Související komentáře
Nejčtenější zprávy dne
Nejčtenější zprávy týdne
Nejdiskutovanější zprávy týdne
Kalendář událostí
ČasUdálost
Archer Aviation Inc (09/25 Q3)
Blackrock Inc (09/25 Q3, Bef-mkt)
Domino's Pizza Inc (09/25 Q3, Bef-mkt)
7:00Telefonaktiebolaget LM Ericsson (09/25 Q3)
11:00DE - Index očekávání ZEW
12:45Johnson & Johnson (09/25 Q3)
13:00JPMorgan Chase & Co (09/25 Q3)
13:00Wells Fargo & Co (09/25 Q3)
13:30Goldman Sachs Group Inc/The (09/25 Q3)
14:00Citigroup Inc (09/25 Q3)