What determines the exchange rate? What determines the exchange rate of the dollar to the ruble?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Recent events in our country have made many citizens think about what to do with their savings and how not to be in the red with a possible devaluation of the national currency. The ruble is weakening. It is completely useless to deny it. But what determines the exchange rate? There are so many decisive factors. And what determines the exchange rate of the dollar to the ruble? What is the relationship between these currencies?

The ruble as the national currency of Russia

It is difficult to understand what the exchange rate depends on, not knowing what exactly affects the rate of your national currency. The ruble came to us from ancient times. But over time, the reasons for its strengthening and weakening have not changed at all. First of all, the trade balance affects the exchange rate. That is, the ratio of the amount of produced imports in relation to exports. This means that the more this ratio tends to zero, the less prerequisites there will be for concern. After all, if, for example, exports significantly exceed imports,this can then lead to a lack of competition and a decrease in the level of exports themselves. And if imports take a leading position, then this can lead to a sharp decrease in the amount of foreign currency in the country, which will lead to a decrease in the value of the domestic currency. Which, in principle, can be observed today in Russia. In general, not only this leads the ruble to an imbalance. There are many factors that can affect its growth or fall: geopolitics, inflation, GDP, unemployment, country's macroeconomic indicators and other reasons.

The dollar as a world currency

After the Second World War was over, the US secured the title of superpower. The American dollar flooded into Europe, and this was the reason for its becoming a reserve status currency. The dollar has risen significantly today. But it also has weaknesses: there are some factors that can affect its value. First of all, of course, this is the demand for the dollar in other countries. But it is also very important how this monetary unit develops within its country. After all, there are some factors that the United States uses specifically to increase the exchange rate of the national currency. First of all, these include GDP growth, economic development, balance of payments and the number of unemployed. Often, the banking system within the country can also affect the growth of the dollar. Interest rates and dividends can be controlled by applying special programs and measures. It is difficult to say what determines the exchange rate in a greaterdegree. Each factor plays its own role.

Why is the dollar higher than the ruble?

Russia is a very powerful state, but why is the dollar more expensive? And what determines the exchange rate of the dollar to the ruble? The ruble has not always been cheaper than the dollar. But recently this trend has simply taken root in Russia. For several decades, the dollar has been worth significantly more than the ruble. It is quite easy to explain this pattern. Prior to the abolition of the gold standard, the value of each currency was confirmed by the gold reserves of its state. Money differed only in weight, shape, design and quality of the metal. But after the abolition of the standard, various factors began to put pressure on each monetary unit. They later began to determine its value in relation to other currencies. There is not enough gold for everyone, and this is a fact. Therefore, most countries try not to issue more money than the goods produced in the country. This is done in order to avoid an economic crisis. The conclusion follows from this: the currency of the country that produces the most goods will occupy a leading position throughout the world. Today, that country is America.

Exchange rate. Interest rates

What determines the exchange rate? In order to answer this question more fully, it is necessary to have knowledge in the field of financing. But if we speak in simpler terms, then we get such a scheme. All states use interest rates toconducting its own monetary policy and controlling the exchange rate. As you know, the size of this interest rate is always influenced by several factors: the level of inflation, government policy, the demand for a certain currency. Among the most influential factors are the following: relative interest rates, purchasing power parity, economic conditions, demand for and supply of capital. Together, all these reasons will form one or another cost of buying and selling each monetary unit. What determines the level of the exchange rate? Perhaps it depends on how all these factors will develop.

Why is the rate moving?

Why are exchange rates moving? As mentioned earlier, trade relations have a certain influence on each of them. Also, the exchange rate depends on exports and imports. As national incomes rise, so does the demand for imported goods. This, of course, leads the national currency to low positions. This factor is called "purchasing power parity". Another important factor that affects the direction of capital movement is currency speculation. In most cases, this is due to the desire of investors to have more profitable deals by driving up the price of foreign currency. Consequently, such actions lead to the movement of capital from one country to another, which negatively affects the financial market. This phenomenon is called "capital flight". The consequences of this factor can be quite negative, for example,lead to a sharp jump in rates, and possibly to a real crisis. Why is the exchange rate moving? The long-term trend of the movement of rates is significantly influenced by various kinds of funds. After all, the main activity of these organizations is investment. If we take into account the amounts that the funds have, it becomes clear how these investments can affect the exchange rate. For example, make it move in one direction for quite a long time. And of course, one cannot fail to note the influence of the state on the exchange rate with the help of banks. As well as the activities of importers and exporters.

Forex market

Recently, many began to resort to making money with the help of the Forex market. And at the same time, the question of what determines the exchange rates at Forex began to arise more and more often. The most important drivers of currencies in this market are two factors: exports and imports, as well as capital activity. Whatever you say, everything that concerns the currency and its value depends solely on trade relations between countries. After all, the higher the cost of goods produced in one's own country, the more expensive the currency will be. Well, enough has already been said about the activity of capital above. It is very important to note that the Forex market is for people who simply want to exchange one currency for another in order to use it. But today, most of the participants in this market are speculators who profit from the movement of the stock price. However, they can usetheir speculation even small fluctuations in exchange rates.

"Black gold" and currency fluctuations

What determines the exchange rate? As mentioned earlier, many factors play a role in shaping the value of each monetary unit. But the most noticeable influence on exchange rate fluctuations is exerted by the price of oil. This is especially reflected in the dollar equivalent. Recently, the United States has significantly increased the amount of extracted energy resources. In this regard, the OPEC countries lowered the price of oil from $100-120 (up to $50-60 per barrel). And this, first of all, had a negative impact on the state of the economy of many countries. Including Russia, which today is struggling with the problem of the fall of the national currency. Previously, when US oil consumption was at a high level, and the “shale revolution” had not yet swept the world, the dollar exchange rate reacted negatively to rising oil prices. Today the situation has changed dramatically.

World currencies and the dollar exchange rate

The year 2014 was not easy for the financial market. And this affected not only Russia, but also a number of other countries. For example, by the end of the year, the dollar strengthened by 11% against the euro. The yen is in an even more difficult situation, the level of strengthening of the dollar amounted to 12%. Of course, the result of Russia is difficult to equate to the losses of these countries, because the ruble has fallen by almost 45% in a year! And the results of the virtual currency (bitcoin) have completely fallen to the bottom. Compared to November 2013, bitcoins have fallen in price against dollars by as much as 72%. Minimumlosses for this year suffered such currencies as the British pound, the Indian rupee, the Chinese yuan. This behavior of currencies is primarily due to the fall in prices for "black gold".

These unpredictable exchange rates

The Forex market can often provide novice clients with useful information on how to predict currency rates. First of all, according to experts, it is necessary to follow all the events in the world of politics and economics. And also be sure to carefully consider the forecasts of leading analysts for the near future. Of course, in no case can one completely rely on someone else's opinion, but it is still necessary to listen. In order to try to predict the exchange rate for the near future, it is necessary to take into account interest rate parity, purchasing power parity and other nuances that are associated with the movement of exchange rates. Of course, not everyone is able to quickly learn all the intricacies of the financial market, but with a strong desire, it is still possible!