21 June 2012
The Price of the dollar arises due to several factors like- Higher Interest rate on loans, advances etc Infalation like petrol prices hiked drastically.
28 June 2012
The value of a currency can be viewed from a domestic as well as an international perspective. Domestically, we use measures such as the Consumer Price Index (CPI) to measure changes in the purchasing power of the dollar over time. When the CPI increases, we say that the dollar is buying less — the value or purchasing strength of the dollar is going down. If the CPI is relatively stable, we say that the value of the dollar is stable. For some products with falling prices, we can even say that the purchasing power of the dollar is increasing. Even when the dollar may be stable domestically, the value of the dollar could rise or fall as measured by another country's currency. In those cases, a currency is a commodity. It is something that has a price and is bought and sold to be used. The medium of exchange used to purchase this commodity is the currency of another country. The dollar, in that perspective, is purchased by foreign citizens who will, in turn, use it to purchase U.S. goods and services or dollar-denominated assets such as Treasury securities, corporate or municipal bonds, or stock.
In most cases, the buying and selling of currencies takes place in the forex market. The forex market is essentially governed by the law of supply and demand and is generally not regulated by any government or coalition of governments.The prices set for each country's money is determined by the desire of those trading to acquire more of it or to hold less of it. Each individual acts on the belief that he or she will benefit from the transaction.
According to the law of supply, as prices rise for a given item (in this case money), the quantity of the item that is supplied will increase; conversely, as the price falls, the quantity provided will fall. The law of demand states that as the price for an item rises, the quantity demanded will fall. As the price for an item falls, the quantity demanded will rise. It is the interaction of these basic forces that results in the movement of currency prices in the forex market.
For example, if Indian investors saw an opportunity in the U.S., they might be willing to pay more Rupee in order to get dollars to invest in the U.S. If the dollar moved from Rs. 45 per dollar to Rs. 55 per dollar, the dollar "strengthened against the Rupee." In other words, a dollar could buy more Rupees and the rupee "weakened against the dollar" because a Rupee could buy fewer dollars.
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