How To Determine The Value Of A Nationís Currency
When it comes to valuation of currency it is a complex process what is governed by several factors. In the Forex market the trading of currencies occurs based on a currency pair which shows that, how much of one currency has to be paid in order to acquire the other currency. When you plot the value of this pair on a graph, you will find certain trends surfacing that shows distinct patterns over a period of time. These trend movements show that the economy of a nation is one of the vital factors that govern the value of a currency.
If you want to know about gross domestic product or GDP, it is a gauge that allows one to determine the health of an economy. The other factor that has a lot of influences is the CPI or the consumer price index that shows the money that is paid by customers for a certain basket of goods and services. The upward movement of these numbers shows the growth of an economy. When it comes to the worth of a currency, one needs to depend upon the demand and supply of the currency as well. When a country exports a lot, those who wish to buy the products needed to acquire the nationís currency in order to buy the exports. In order to get the nationís currency, a country will have to spend their own currency for such a purchase due to which the demand for the exporting countryís currency will go up. That in turn will increase the value of the currency.
There have been a high amount of exports from China but even then the Yuan is kept weak. That shows that there is a way to manipulate the value of the currency of artificially increasing or decreasing the supply of the currency. The nation has a monetary policy by which all the banks give the greenbacks to the central bank and it in turn gives them Yuan. As more Yuan is printed, the supply of the currency remains high and thus the currency remains weak. There are other factors that contribute to the worth of a currency but these are the major driving cases.