How interest rates affect the exchange rate?
Exchange rates are very volatile, and may jump from day to day. To this affect banks, which have a direct relationship with the currency. The fact is that every bank should have a back-up reserves of money. If this provision is not, the bank can simply just go out of business, as customers sometimes ask for really huge amounts of money …
So, if there is no reserve, the bank will be forced to exhaust their reserves, and pass them on customer demand, of course, a huge percentage. Anyway, it will lead to the fact that a commercial bank would have to borrow money from their colleagues.
So will this cycle, which usually leads to an increase in currency as such. In fact, the back-up the amount of money provided to the bank is the state, that is, the client receives public money in debt.
This leads to the fact that he receives a boost in the form of interest, which is about half the amount he took. So it turns out currency growth, and the bank is still in profit. Then, when the moment of crisis is settled, it obtains a new stable currency system, which is valid until the newcomer, like now.
In currency markets, the situation is much more difficult to obtain, since there is built completely different pyramid scheme. Interest rates play the most important role here, because all the trades depend only on the best deals. Everyone tries to sell its currency so that even to stay in the black.
Accordingly, it begins a fierce fight for something, to one or another trader gets its place in the sun, and to earn as much money as possible. So this leads to the fact that someone who has less experience, remains in negative territory. This results in an unstable position, so traders should be for the benefit of himself to carry out the transaction the maximum benefit.
But the benefit of this should be compensated by the fact that to keep the currency stable, that there is no “default”, or just depletion of the consumer market. Every day through the currency markets are very large sums of money. Sami markets are closely connected with the banks, where money and pass from hand to hand.
If the approximate total amount of money every day rests on a bar, it is very good for the bank. This reduces the cost of the inconsistency of a currency. If on the contrary, it leads to a big jump in prices for a particular currency. In general, it affects the interest rates …