1. Trade conditions
The exchange rate is determined by the balance of payment. A country facing a deficit in her balance of payment finds the demand for foreign exchange exceeding its supply and the exchange rate moving against her. A country with a surplus in her balance of payment finds the supply of foreign exceeding demand, the price of the local currency raises above par i.e. it exchanges at a premium.
2. Stock Exchange Influences
These include investment and speculation in international securities and the grant of loan by one country to another. Loans by Britain to Kenya or the purchase by Britons of securities on the Nairobi Stock Exchange would give Kenyans the right to withdraw funds from London. This will increase the claims against Britain and deflate the value of British currency in Kenyan shilling. The payment of interest on loans made by British and the investment by other nations in British securities would increase British claims on other nations and thus increasing the value of British currency.
3. Banking Influences
This includes investment by banks in other countries. Banks also issue of Letter of Credit and their arbitrage operations involving the buying and selling of foreign currency with a view to making profit later on. These days banks issue travelers cheques, letters of credit etc., these increase foreigners claim on the country of issue and to that extend influence
the exchange rates against it.
4. Speculative Influences
Speculative influences are the outcome of the purchases and sale of foreign currencies by speculators in the expectations of a rise or fall in their value with a view to making profit. The action of speculators influence exchange rates
5. Currency Condition
Foreigners judge the value of a currency in terms of its purchasing power as indicated by the general price level. The greater the purchasing power of the currency unit, the higher the price they are willing to pay for it. Inflation lowers the purchasing power of the currency unit and moves the exchange against the inflated currency.
Wilfykil answered the question on March 9, 2019 at 08:18
- What are the limitations of Purchasing power parity?(Solved)
What are the limitations of Purchasing power parity?
Date posted: March 9, 2019. Answers (1)
- State and explain the Determinants of Rate of Exchange(Solved)
State and explain the Determinants of Rate of Exchange
Date posted: March 9, 2019. Answers (1)
- Explain the coordination of Monetary and Fiscal Policies(Solved)
Explain the coordination of Monetary and Fiscal Policies
Date posted: March 9, 2019. Answers (1)
- Give the limitations of Fiscal Policy(Solved)
Give the limitations of Fiscal Policy
Date posted: March 9, 2019. Answers (1)
- Outline the Limitations of Fiscal Policy(Solved)
Outline the Limitations of Fiscal Policy
Date posted: March 8, 2019. Answers (1)
- Explain the Fiscal Policy Instruments(Solved)
Explain the Fiscal Policy Instruments
Date posted: March 8, 2019. Answers (1)
- Explain the Origin of Fiscal Policy(Solved)
Explain the Origin of Fiscal Policy
Date posted: March 8, 2019. Answers (1)
- What is the comparison between Fiscal Policy and Monetary Policy?(Solved)
What is the comparison between Fiscal Policy and Monetary Policy?
Date posted: March 8, 2019. Answers (1)
- What are the factors Influencing the Effectiveness of Monetary Policy in Developing Countries?(Solved)
What are the factors Influencing the Effectiveness of Monetary Policy in Developing Countries?
Date posted: March 8, 2019. Answers (1)
- What are the major objectives of monetary policy?(Solved)
What are the major objectives of monetary policy?
Date posted: March 8, 2019. Answers (1)
- What is the Role of commercial banks in a country’s economy?(Solved)
What is the Role of commercial banks in a country’s economy?
Date posted: March 8, 2019. Answers (1)
- Describe Commercial Banks and their functions(Solved)
Describe Commercial Banks and their functions
Date posted: March 8, 2019. Answers (1)
- Describe Financial Intermediaries(Solved)
Describe Financial Intermediaries
Date posted: March 8, 2019. Answers (1)
- Describe The Financial System(Solved)
Describe The Financial System
Date posted: March 8, 2019. Answers (1)
- In order to construct the IS – LM model for a simple economy, what assumptions will be held?(Solved)
In order to construct the IS – LM model for a simple economy, what assumptions will be held?
Date posted: March 8, 2019. Answers (1)
- Explain the Measurement of Money Supply(Solved)
Explain the Measurement of Money Supply
Date posted: March 8, 2019. Answers (1)
- What is the Monetarist view of the Quantity Theory of Money?(Solved)
What is the Monetarist view of the Quantity Theory of Money?
Date posted: March 8, 2019. Answers (1)
- What is the debate between Classical Theorists and Keynes on Demand for Money?(Solved)
What is the debate between Classical Theorists and Keynes on Demand for Money?
Date posted: March 8, 2019. Answers (1)
- Explain Keynes Money Demand Theory(Solved)
Explain Keynes Money Demand Theory
Date posted: March 8, 2019. Answers (1)
- Explain the Cambridge Equation Demand for Money(Solved)
Explain the Cambridge Equation Demand for Money
Date posted: March 8, 2019. Answers (1)