And who determines monetary values?
The answer to the second part is simple. The monetary value is determined by the buyers of the currency. These are mainly travelers, governments and Forex traders. FOREX stands for Foreign Exchange. There are many factors that currency traders, governments and businesses take into consideration when determining the fair market value of a currency.
Fair market value is the price at which a willing buyer and seller meet. The buyer must take many factors and considerations into account when trying to accurately assess the value of a currency at any given time. There are currently around 180 different currencies in the world. Let's take a look at some of the factors used to determine the value of a currency.
Factors Affecting Monetary Value:
1. Political conditions in the country – This includes the stability of government, the level of corruption, corruption and the degree of law and order. Also includes a country's relations with other countries and in particular their relations with the United States, the United Kingdom, China and Russia. The form of government in the country is also a factor used to assess the value of a currency. Consider the wide variety of forms of government in Saudi Arabia, China, the United Kingdom, Venezuela, and Thailand, just to name a few.
2. Economic Situation – This includes factors such as employment, unemployment, work ethics, infrastructure, inflation and direction of the economy. Is it older or more recent in its orientation; computers and high tech, or more agriculture and manufacturing.
3. Perception from the outside – Perceptions and attitudes of other countries towards a country are as important as the reality of the real situation in the country. News, media, movies, newspapers, rumors and effects can create perceptions. What do we know about a country? The less we know, generally the lower the value of a currency.
4. Demographics – A young population can mean better prospects for the future, people more open to change and development and a growing size of the workforce. The overall population of a country is a factor. What weight does this country have on the world stage.
5. National leaders – The openness, reliability and sympathy of visible leaders is a factor. This includes political leaders, sports figures, business owners and celebrities. Here are some national figures who affect their country, for better or for worse. Kim Jung Il, David Beckham, Nicole Kidman, Madonna, Osama bin Laden, Barack Obama and Vladimir Poutine. These help to shape the worldview of a country.
6. Isolation versus opening – Continuum China is becoming more open, more transparent. It helps. Cuba is very closed and isolated. Venezuela is increasingly isolated by some of its recent actions. The Chinese markets are opening up more and more. Cuba, Kyrgyzstan, Russia and Japan all have different levels of openness to the outside world, which affects the value of their currency.
7. Natural Resources – The type and amount of exploitation of a country's natural resources certainly helps to create a perception of the value, or lack thereof, of a country's currency. Mining of minerals, forests, petroleum, fish and other resources is envisaged. Also the level of technology to develop these resources.
8. Weather factors such as drought, tsunamis, earthquakes and floods are taken into account. What is their frequency and what is the country's reaction to them? These also affect the timeliness, security and perception of a country. Is it a tourist destination?
9. War and Conflict – With which other country is a country at war, and who are its allies? Their military strength and technology, their willingness to go to war and for what, are important factors in assessing the strength, stability and value of a country in its currency.
ten. Education – This includes the languages spoken, the level of computer skills, Internet connectivity, culture and religion. Scientists, entrepreneurs, authors and inventors are all affected by the type and quality of education in a country.
In conclusion, monetary values are determined by many factors. We should not consider a single problem, but a set of several. In trading currencies, such as FOREX, transactions are usually done in pairs. Values must be relative to something. The situation of a country in relation to another country is therefore also important. Common currency pairs are the U.S. dollar and Japanese yen, the Euro, and the U.S. dollar, for example. These and other factors determine the value of a currency. Some are tangible, some are intangible. Some are fixed and some are manageable. Sometimes it's the news of the moment and sometimes the long-term situation. This is why monetary values change often and there is no place or person who determines monetary values. And why currency exchange, based on fluctuating monetary values, can be an exciting, lucrative, volatile, fun, or disastrous form of business or investment.