22 June 2013
1.Political Instability 2.Economic Stability 3.Money Supply 4.Balance of Trade 5.reduce the export 6.Rate of fall in GOLD 7.excess import
Many countries face political instability, which causes their currencies to lose value as fewer people want to buy their currencies and more people sell them as they flee the country and pull their money from it.
People change the currency they use in response to economic events. The United States' 2008 financial crisis -- brought on by subprime mortgages and investment markets -- led the dollar's decline as people sold their dollars and re-invested in European currencies.
The dollar, unlike other commodities, does not have a fixed supply. The Federal Reserve can print more money and inject it into the economy. This makes the dollar's value fall -- thus boosting exports, which can be sold for cheaper prices -- by increasing the amount of dollars available. Conversely, the government can take money out of circulation and increase the dollar's value because of reduced supply but steady demand.
The balance of trade also affects the dollar's value. If the U.S. imports more than it exports, there are more dollars flowing out of the country than there are coming in. This situation is unsustainable, which makes foreign investors less inclined to invest in American products, stocks and firms -- all of which require dollars. An uneven balance of trade can reduce the dollar's value by decreasing its demand, regardless of its supply.
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