5. FACTORS AFFECTING CURRENT EXCHANGE RATES

Interest Rates: Countries with higher interest rates tend to attract more foreign investment, which increases demand for their currency, pushing up its value.​

Inflation Rates: Low inflation generally strengthens a currency, as the purchasing power remains stable, while high inflation erodes value and lowers demand for the currency.​

Economic Stability: Countries with strong, stable economies tend to have stronger currencies, as investors prefer to hold currencies of nations with consistent growth and low risk.​

Political Stability: Political uncertainty can lead to currency depreciation, as investors seek safer currencies from more stable countries.​

Trade Balances: A country with a trade surplus (exports more than it imports) typically sees an increase in demand for its currency, which strengthens it. Conversely, a trade deficit can weaken a currency as more of it is sold to pay for imports.​

Government Debt: High levels of national debt can scare away investors, leading to lower demand for a country’s currency and a weaker exchange rate.​

Speculation: Traders buying or selling currencies based on future expectations can cause sharp short-term movements in exchange rates.​