Factors Influencing Currency Demand and Supply

Foreign demand for exports

Increased demand for domestic goods abroad.

Domestic demand for imports

Increased purchase of foreign goods by residents.

Foreign direct investment

Investment made by a company in another country.

Portfolio investment

Investment in financial assets across borders.

Remittances

Money sent home by foreign workers.

Speculation

Buying currencies to profit from future changes.

Relative inflation rates

Comparison of inflation between two countries.

Relative interest rates

Comparison of interest rates between countries.

Relative growth rates

Comparison of economic growth between countries.

Central bank intervention

Actions taken by a central bank to influence currency.

Consequences of changes in exchange rates

• the inflation rate

• economic growth

• unemployment

• the current account balance

• living standards