The currency of the country is the token which is being exchanged for the good and services, provided and desired by the owner of the currency. The valuation of the currency in the international market shows the status of the economy of the country. The currency is exchanged generally comparing its value to the USD or GBP that is the US dollar or the Great Britain pound as these are the most acceptable currency of the world along with euro. It is amazing to know that although US dollar and the British pound are the most acceptable currency of the world but they are not the most expensive currency of the world.
Factors which determine the valuation of the currency
- Lower inflation: The countries which have the lower inflation rate see the improvement in the value of their currency in the international market .The lower inflation rate suggest that the purchasing power of the country is increasing with the decreasing inflation. The countries which have increase in the inflation rate sees the decrease in the valuation of their currency in the international market.
- Interest rate: The interest rate is one of the most influential factors which affect the value of the currency. The higher the interest rate the greater is the value of the currency .The higher rate of interest on the deposit in the country invites large amount of foreign exchange to the country. Thus increasing the foreign exchange reserves of the country which is taken by the world as the good economic health of the country.
- Current account deficit: It is also known as balance of trade of a country. The deficit in the trade balance of the country decreases the value of the currency. The deficit means that the country requires more foreign exchange than what it gets by exporting its services and products to its trading partners.