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Investor confidence and its impact on Exchange Rates
Investor confidence affect currency prices. If investors' high confidence in the economy of a country, the probability of the investors to buy assets in that country would be often, of what drives the value of a country's currency to rise. But in case if the investors' confidence in the economy of any country is low it will pay investors not to buy any assets in that allowance and this will push the value of the currency of that country to decline.
Exchange rates are affected by many economic and political factors, the most important interest rates, inflation rates and political stability. And also, the States involved in some cases in the exchange market to influence the value of their currencies, either by flooding the market with their own currency in an attempt to lower the price or, on the contrary, through the purchase in order to raise the price. This is known as central bank intervention. And it can perform any of these factors, in addition to the major market orders to fluctuations in currency rates. However, it is impossible for any entity that can be "controlled" by itself in the market during any period of time, due to the volume of foreign currency trading the Forex market.
Other factors that affect currency prices
Relative price levels:
According to the theory of purchasing power parity, when domestic goods prices rise decreases the demand for domestic goods and heading the national currency rate downward urges can continue to sell domestic goods in a good way, and vice versa.
Tariffs and quotas: affect the exchange of both price tariffs (taxes on imported goods, for example) and quotas (restrictions on the amount of goods that can be imported), because it increases the demand for local item.
Preference for foreign goods to domestic goods:
Increased demand for exports of the State of what causes the rise of its currency in the long term, increased demand for imports caused the devaluation of national currency.
yield:
If the state was more productive than other countries, could reduce domestic prices of goods for the prices of foreign goods and remain profitable, the result is an increased demand for domestic goods and the tendency of the local currency to rise.
