How is the currency determined in the open market?
The value of any currency is determined by many factors. A few qualitative factors that determine the currency weight and value is given below.
- Volume and amount traded– The percentage of any currency traded in inter-country and intra-country transactions, including the extent of the currency traded is a good factor for transaction determined currency value.
- Reserves in the central bank- The amount of reserves in the central bank can determine the steady rate of any currency.
- Transactions for the currency vis-a-vis another currency- Transactions against any other currency can determine the demand and weight of any currency.
- Currency reserves in commercial and central bank in a country- Currency reserves in commercial and central banks, including overseas inter-bank transactions determine currency values in the country.
- FOREX trading on a currency- Foreign Exchange trading on a currency can determine the extent and demand for a currency.
- Market determined trading and hedging for a currency- The open market trading can sometimes force the right value for trading and hedging against various parameters of a weight determined currency.
- Supply and demand of a currency in the open market- The apt supply and demand of any currency can determine a currency in the open market post trade.
- Demand for treasury bonds based on yields- Sometimes, the yield curve can determine the spread rate, which can enhance a currency, if treasury bonds are issued.
- Selling and buying of a currency- The selling and buying of any currency can favour or disfavour the rise and fall of any currency.
- Gold or reserves made against any currency- Any reserves made against any currency will provide a cushion for a fall back of any currency.
Any fall or rise of these concerning factors determine the currency value of any country.