What makes a particular country's currency "strong" and another "weak"?

Discussion in 'Business & Economics' started by Mind Over Matter, Jan 15, 2011.

  1. Mind Over Matter Registered Senior Member

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    For example, the US dollar is stronger than the currency in third world countries.
     
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  3. tablariddim forexU2 Valued Senior Member

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    Basically, if a country's economy is strong then its currency tends to be strong. Strength of course is relative, the US economy is a shambles yet the USD is still what every other currency is weighed against. That is because traditionally the USD has been the currency of international commerce. Currencies of developed nations that offer high interest rates tend to gain in strength because of the perceived return on cash deposits.
     
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  5. Carcano Valued Senior Member

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    The word STRONG in this case means value or buying power.

    And the value of money is determined by supply relative to demand...just like any other commodity.
     
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  7. PsychoTropicPuppy Bittersweet life? Valued Senior Member

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    Big promising words and speeches by the leaders, Speculations on the market

    Please Register or Log in to view the hidden image!

     
  8. S.A.M. uniquely dreadful Valued Senior Member

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    Many things. When you talk about a strong vs weak currency, you're referring to its exchange rate in terms of some standard or relative to another currency. Hence when you say


    You are referring to the exchange rate of the pound vs the dollar or euro and speculating on the factors which resulted in this rate.

    The factors being:

    1. Interest rate: if a national bank offers a high interest rate it means better returns on bonds which will attract foreign investment - so if UK interest rates go up the pound will be strengthened.


    2. Economic health: high growth, low inflation and reasonable debt burden contributes to economic health. Banks, corporations and countries tend to move investments from countries with poor economic health to countries with good economic health

    3. Foreign trade: The amount of currency required by other countries to purchase goods in your country. If there is a large trade deficit, it means your country is spending more and earning less. Thats not good for the currency

    4. Official intervention: Artificially undervalued or overvalued currencies like the Chinese yuan,; the Chinese keep their currency undervalued so that their goods cost less and hence they can be competitive in exports. Which means they can sell more goods and hence maintain a lower trade deficit. It also means that they don't have to take too many dollars in exchange, which is something that they want to avoid. Plus an artificial currency value keeps it protected from fluctuations in the market, since it cannot be traded freely at its "real" value. This also requires the maintenance of a large foreign reserve so as to cover any fluctuations in the market value and prevent inflation. A strong currency would make local goods more expensive and foreign goods cheaper. So this works to the advantage of the Chinese, as a weak yuan keeps Chinese goods cheap and makes US goods more expensive, for both, the Chinese and the Americans

    5. Speculations: This is the most unpredictable aspect of currencies. Trading on speculative investments and derivatives

    source: http://www.thisismoney.co.uk/markets/article.html?in_article_id=429456&in_page_id=3
     
    Last edited: Jan 15, 2011
  9. cosmictraveler Be kind to yourself always. Valued Senior Member

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    The GDP has much to do with it as well for a strong GDP leads to a healthy currency.
     
  10. Search & Destroy Take one bite at a time Moderator

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    Would you rather be payed in Dollars or Botswana Pula?
     
  11. Carcano Valued Senior Member

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    Strong *nominal* growth in GDP can also mean a weakening currency.

    The numbers go up...because the value is down.
     
  12. Me-Ki-Gal Banned Banned

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    That sounds about right to Me, But something don't feel right with U.S. currency. I think we all knew these day would come , yet we still live in denial and continue trying to prop up the system. People are loosing faith more and more as the days go on even if there is still enough people to believe and prop up the system for now , but when the tipping point is reached it could fall in a type of cascading effect. The thing is all you brilliant people should be looking for a new economic system to be ready to implement as to lessen the impact went the days come, or even to start implementing in a silo fashion as needed before it all collapse in a catastrophic way. Take your pill it will be good for you, I call them smart pills . They taste bitter in the mouth but nice and warm and fuzzy in your belly.
    Consider this: The currency people like the most is appreciation and I don't mean value of stock our assets of material value. What I mean is We want to be wanted and valued for our contribution in life and if you feel you are in a mundane job that has no meaning to your own and others happiness it has a tendency to make you dead to world inside and strips you of the very happiness we all really want. So to Me it is a better currency system with more value than monetary gain that rules the world in our current system. the bottom line is for individuals to be " Wanted and Needed"
     
  13. Carcano Valued Senior Member

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    We all depend on people we dont want to be.

    Do your garbage collectors feel needed and wanted?

    They should!
     
  14. Fraggle Rocker Staff Member

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    "Strong" means two things when applied to currency.
    • 1. Its value is stable. If you trade some of your own currency for it today, you can be confident that three months from now it will still be worth what you paid for it. The Deutschemark during the Great Depression will forever be the classic example of an unstable currency, losing value so quickly that you can see it in stamp albums. More than once a year they had to double the price of postage stamps; by the end of the decade they had stamps denominated in billions of marks.
    • 2. Its value is realistic. In some countries the government places an artificially low value on the currency, because this discourages imports and encourages exports, a short-term way of boosting their economy. Currency can be overvalued as well. During the Communist era, the Czech korun was valued as equal to ten cents U.S.. When I crossed the border I had to exchange a certain amount of American money at that rate for each day of my stay. In fact its purchasing power was more like two or three cents, and the government was using this as a sneaky way to obtain foreign exchange.
     
  15. quadraphonics Bloodthirsty Barbarian Valued Senior Member

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    No, a "strong currency" is simply one that is worth a lot compared to other currencies. Specifically in the sense that imports into the country in question are relatively cheap, and exports from there relatively expensive. There is no necessary relationship between currency strength, and currency stability or government non-intervention. Likewise with a "weak currency."
     

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