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What Factors Affect Foreign Exchange Rates?

Published by Scott Hershman

If you’ve ever had to seek out foreign currency exchange services nearby for travel or another reason, you probably already know that the conversion rates are in constant flux. At West Suburban Currency Exchanges, Inc., our broker (Moneydart) updates foreign to US rates on a daily basis. There are numerous factors that influence global exchange rates; today we will provide a brief overview to help illuminate this complex topic.

Floating vs. Fixed Currency

Currencies are compared to one another by way of an exchange rate regime. Some countries, like the United States, subscribe to a floating exchange rate regime. A floating exchange rate is flexible to market forces, including supply and demand for a certain currency. Other nations utilize a fixed exchange rate (or pegged exchange rate), where the local currency’s value is tied to that of a more prevalent currency. Several countries have pegged their currency’s value to the US Dollar, including the Arubian Florin, the Bahamian Dollar, and the Cuban Peso.

The Market Forces on Floating Exchange Rates

Because all currencies are either floating—subject to market forces—or pegged to currencies that are, the state of the market matters very much regardless of what exchange you’d like to do. Relevant factors include (but are not limited to) a country’s:

  • The national rate of inflation
  • Economic performance
  • Political stability
  • Terms of trade
  • Interest rates
  • Public debts

Foreign Currency Exchange Services Nearby

While the way currency exchange rates are computed may be complicated, West Suburban Currency Exchanges, Inc. makes the process very simple for our customers. Any currencies that are not immediately available can be ordered and generally provided to you within 24-48 hours. Please reach out to us with any questions or visit a location for foreign currency exchange services nearby!

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