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PrayasRaikwar
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The strength of a currency depends on its demand. It's the universal law of supply and demand. When a demand for a currency is high, then that particular currency will rise. Conversely, when the supply of a currency is higher than its demand, then it well fall against other currencies. The value of a currency depends of factors that affect the economy such as imports and exports, inflation, employment, interest rates, growth rate, trade deficit, performance of equity markets, foreign exchange reserves, macroeconomic policies, foreign investment inflows, banking capital, commodity prices and geopolitical conditions. A country's currency may not always mirror economic conditions a country may have a very robust economy but its currency may remain weak relative to other currencies but how is it possible? The answer lies in speculation, everyday, currencies are traded against each other relying mostly on technical factors than its fundamentals. The next logical question will be Now, what does a country do in order to make its currency more demanding or attractive to others? The answer to this question relies on the treasury of one country, particularly interest rates. It's comparable to a bank. Definitely, a bank depositor will seek banks that give the highest interest rates. Then why can't all treasury of each country just increase their interest rates in order to have their currencies appear demanding or attractive? It's not that easy. In fact, it requires a skillful balancing act by the treasury to ensure the flow of money inflow and outflow. If there are too low interest rates,then the currency will fall. But, if there are too high interest rates, then the economy will suffer as it will require investors such as entrepreneurs to borrow money at a much higher interest rates to use as their capital for business growth and expansion.