1. Factors affecting Pakistan
currency exchange rate and
USD exchange rate.
Def currency:.the fact or quality of being
generally accepted or in use.
Def exchange rate:. the value of one currency
for the purpose of conversion to another.
Factors that affect the pak currency
and USD exchange rate.
There are five main factors that affects any countrys
exchange rate that includes USA and PAKISTAN.
2. The rate at which the general level of prices for
goods and services is rising is known as the inflation
rate. If, for example, inflation were lower in the USA,
the purchasing power of the dollar would increase
relative to other currencies. USA exports become
more competitive and the demand to purchase USD
for USA goods will increase. Higher interest rates
usually follow. Countries therefore with lower
inflation rates will tend to see an appreciation in the
value of their currency.
2. Interest rates
There is also a high correlation between inflation,
interest rates and exchange rates. Depositing money in
the US for example becomes more attractive if US
interest rates rise relative to other countries. By saving in
US banks, a better rate of return will cause the demand
for the dollar to rise. Central banks also can influence
inflation and currency exchange rates by manipulating
interest rates. If however the inflation rate is much
higher in the US than in other countries, then, higher
interest rates will have little impact in an appreciation of
3. Political events or changes in commodity prices may
cause a currency to fall in value. If speculators
believe the Rupee will fall, they will sell now for a
currency they feel will rise in value. For this reason,
sentiments in the financial markets can heavily
influence foreign exchange rates. If the markets are
alerted to the possibility of an interest rate increase
in the rupeezone we are more likely to see a rise in
the valuation of the Rupee as a result. Because a
government’s reserve of foreign currency is quite low
compared to daily turnover in the market, the power
of speculators is quite significant in exchange rate
4. Balance of payments/current
If the value of imports is greater than the value of
exports, this means there is a deficit in the current
account. This deficit is a result of more spend on
foreign goods and services by a given country than it
is earning, and borrowing from foreign sources to
make up the deficit is usually a feature. A lack of
capital inflow to finance a current account deficit will
inevitably lead to depreciation in the currency.
4. 5. Public debt
A country’s debt rating is also a factor which has
influence over its currency exchange rate. Public
sector projects sometimes require large scale deficit
financing which boosts the domestic economy.
However, foreign investors are less likely to invest in
countries with large public deficits and government
debt. Fear of a debt default can result in the selling
of bonds denominated in that currency by investors,
resulting in a fall in the value of the exchange rate.
Governments may also need to print money to pay
parts of a large debt, resulting in inflation.