History of Money: 1029019

Introduction

International trades are impacted directly by the exchange rates. Boosting of the exports can have the salutary effect on the GDP of the country. The currencies that are exceptionally strong can be dragged on the economy that can result in the higher interest rates as well as it shifts in the monetary policy for decreasing the currency value for spur the growth. Apart from inflation as well as interest rates, the most important factor for the relative level of country’s economic health. The currency exchange rate helps in playing important role in the trade level of the country that is critical for most of the free market economy of the world. Hence, the aim of this assignment is to do the analysis on the how trading of currency plays positive role in the global economy. Under this assignment, discussion will be done on the economic factors that affect forex market, levels of trade between the nations and positive role played by the currency trading in the global economy (Bussière, Delle Chiaie & Peltonen, 2014).

Discussion

Economic Factors Affecting Forex Market

Forex is considered as the true global marketplace, which is having the buyers and sellers from every corners of globe that participates every day in trillions of dollars. It is because of the much greater role played by the macroeconomic events, trading of the foreign exchange has become globalized activity. The forex markets are driven primarily by the macroeconomic factors (Lai & Yu, 2015). Trader’s decisions are affected by these factors and it ultimately determines currency value at any point of time. One of the key factor in the value of the nation’s currency is the economic health of the national economy. The overall health of the economy are shaped by the number of events as well as number of the events that are changed on daily basis, which contributes towards 24/7 nature of international foreign exchange market (Campanella, 2016).

Level of Trade between the Nations

The second important factors that are played by the currency in the global economy are levels of balance of trade as well as trends between the nations. The levels of the trade between the nations serve as the proxy for relativeness of demand of the goods from the nation. The nation that has internationally high demand for their goods and services typically sees appreciation of their currency such as for purchasing goods from Australia, the buyers have to convert their currency into the Australian dollars in order to make purchases. Hence, if there would be increased demand for Australian dollar then automatically it will put upward pressure on the Australian currency value (Varoufakis, 2015).

Moreover, the impacts of the foreign currency trading has the wider magnitude, it is because the impact of the currency trading is wider throughout the world. Several factors affect currency trading such as output level and real exchange rates. In case of devaluation of currency or depreciation of the prices of imports increases in comparison with the exports prices, which results in improving trade balance and hence it improves positive relationship with foreign sector of the economy (Prasad, 2017).

Positive Role in Global Economy

Foreign exchange helps in identifying the process of converting the currency into the international banknotes at the particular exchange rates. These transactions present distinct ramifications for globalized economy. The rate of foreign exchange affect the capital flows, international trade as well as political sentiments. Foreign exchange rates influences the investment funds or the capital flows, which moves into as well as out of the country. As a result of which, the foreigners liquidates the bonds, stocks and the real estate, because these are the assets, which losses the purchasing power that are relative to the competing investments in the other countries and currencies. The international savers prefers for purchasing the investments in the countries, which features stable as well as exchange rates that are appreciating. Generally, foreigners are much more comfortable in making the overseas financial commitment in case they feel that the value to be preserved, as the international profits are converted eventually back into the home currency (Pomeranz & Topik, 2014).

The orderly dispersal of the exchange rates by the organized currency market helps for leading to the increased globalization. In general, globalization is referred as the integration of the separate nations, culture as well as regions within the economy of world. These trends help in improving the spread of the technological innovations, expanding the market as well as creating the jobs for the international labor pool. Globalization includes the inflation because of the increased competition levels for the jobs as well as the market places the downward the pressure on the prices (Gilpin, 2018).

Other important role played by the foreign currency in the global economy is exports, which creates the jobs as well as boost the economic growth. It helps in giving more experience to the domestic companies in order to produce for the foreign markets. Over the time, in the global trade, companies gain the competitive advantages. International level helps in making the companies more efficient (Kelsey, 2015).

Conclusion

Hence, it can be concluded from the analysis that the rising value of currency has become important theme in the financial markets. The movements of the currency although, have been always complicated in its causes as well as consequences. However, with the increase in the value of the currency presents great challenges on both to the investors as well as country, it is because at this particular time, there appears to be the positive force in globalized economy as well as in long-run for the global investors. Further, a change in the value of the currency reflects the long-term changes in the economic prosperity of the nation as compare to the short-term speculative movements. Therefore, it can be said through the analysis that trading of currency plays positive role in the global economy.

Reference

Bussière, M., Delle Chiaie, S., & Peltonen, T. A. (2014). Exchange rate pass-through in the global economy: the role of emerging market economies. IMF Economic Review62(1), 146-178.

Campanella, M. L. (2016). Is the euro ready to play the global currency role?. In The€ uro and the Dollar in a Globalized Economy (pp. 103-122). Routledge.

Gilpin, R. (2018). The challenge of global capitalism: The world economy in the 21st century. Princeton University Press.

Kelsey, J. (2015). Reclaiming the future: New Zealand and the global economy. Bridget Williams Books.

Lai, E. L. C., & Yu, X. (2015). Invoicing currency in international trade: An empirical investigation and some implications for the renminbi. The world economy38(1), 193-229.

Pomeranz, K., & Topik, S. (2014). The world that trade created: Society, culture and the world economy, 1400 to the present. Routledge.

Prasad, E. (2017). Gaining currency: The rise of the renminbi. Oxford University Press.

Varoufakis, Y. (2015). The global minotaur: America, Europe and the future of the global economy. Zed Books Ltd..