Greg Secker describes foreign exchange as an interchange or exchange rates that are related to the trading relationships between two countries. Exchange rates are relative and expressed as a comparison of the currencies of the two countries. The international forex entrepreneur outlines the following determinant factors of foreign exchange trading between countries:
Inflation differences: countries experiencing a consistently low inflation rates are likely to show a rising value in its purchasing power which then increases relativity to other currencies. Countries such as USA and GERMANY are countries that are known with low inflation rates and thus a trade with countries with high inflation will experience depreciation accompanied by higher rates of interest.
Differential in interest rates: According to Greg Secker, when a country has higher interest rate offer lenders a higher economy return and therefore likely to attract foreign capital thus causing the foreign exchange rate to rise. A decreasing interest rate will otherwise lead to the reverse.
Account deficits- the balances in the current account of a country to that of its trading partners will define the rating of its currency. A deficit shows that the country is spends more on foreign trade than it earns thus a more need for foreign currency which will then lead to a low exchange rates.
Terms of trade: the ratio of comparison on the export and import prices that are also in relation to current account and balance of payments. A rising revenue in the export means an increasing trade from export and thus an increased demand in country’s currency from foreign countries.
Political stability and economic performance: He says that foreign investors favor countries that are politically stable and experience a strong economic performance. Such countries will attract investors and draw them from countries that have more political and market risk.
Public debts: countries that are likely to venture in large mscale deficit financing are more likely to scare potential investors as a large scale debt encourages inflation. High inflation means the debts when serviced will ultimately be paid with cheaper dollars. The worst being that the government may choose to increase the money supply and selling securities to foreigners thus more worrisome to the investors thus a considerable drop in exchange rates.