The primary role of currency is to facilitate the exchange of goods and services between two entities. It is the medium that allows economies and regions to grow and prosper. Currencies are usually regulated by the native country to which they belong. The local government is the sole authority that is permitted to issue or restrict the use of currency. However, a particular currency is usually valid only for those transactions that are made within the geographical borders of its host country.
When the trade involves the purchase of goods and services from another country, payment is usually accepted only in the latter currency. This is where the term, currency exchange or foreign exchange originates. Thus, international trade and in turn, the global economy, is heavily dependent, on foreign exchange (forex). For example, When North American manufacturers need to source their raw materials from China, they need to pay their Chinese suppliers in the local currency i.e Yuan.
Thus, if the said transaction is to be complete, an exchange of US Dollars for Chinese Yuan has to occur, somewhere during the purchase process. The Forex Rate is usually expressed in terms of one currency versus the other; i.e. USD/Yuan for example. Currency rates are always in pairs, thus, 1000 USD would be equivalent to 6348 Yuan approximately, as per the prevailing exchange rate.
One of the singular most influential elements that can affect any currency is the government of the country to which the currency belongs to. This is because a government usually tends to have a monopoly over the supply of currency, which in turn can dictate the economic outcome of a country. While over-regulation and high taxes will drive businesses away, a liberal stance usually welcomes investments that cause an economy to flourish.
Industrialization and trade are two other factors that can determine the health of a currency. It has been universally observed, that countries with a high export ratio tend to have currencies that are stronger than those whose countries have an import driven economy. A stable political climate too can have a direct bearing on the value of a currency, and those that are governed by self-styled political forces, usually have a weak currency. Also, if the debt of a nation starts to spiral out of control, the currency often gets devalued rapidly. If this is not corrected through various intervention procedures, things can get out of hand and the economy could even collapse.
The proliferation of the World Wide Web, has led to an explosion in the demand for foreign exchange. It is no longer the sole purview of governments and large multinational corporations. Forex trading has caught on in a big way and individuals and forex brokers alike are flocking to it in droves. A prime example of this phenomenon can be seen in the growing popularity of currency trading in the Middle East. There are many companies that offer currency trading services in the UAE. ICM Dubai, the local arm of ICM UK, is a leading operator among the online trading companies in the UAE.
To learn more about how they can be your trusted partner in your wealth growth plans, do visit: icmcapital.co.uk. Posted by Forex Growth Bot .
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