The currency of a country gets volatile when there is often sudden change in its value and price.
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The currency of a country gets volatile when there is often sudden change in its value and price.
If a country has a history of strong economic performance and sound monetary policy, investors are more inclined to seek out those countries. This inevitably increases the demand and value of the country’s currency. A recession may also cause a depreciation in the exchange rate because interest rates usually fall, however, this isn’t always the case. Other factors that can influence currency value include the determent of foreign investment, which would decrease the value. However, if a recession causes inflation to fall, this helps a country become more globally competitive and demand for the currency becomes greater.
Inflation rates impact a country’s currency value. A low inflation rate typically exhibits a rising currency value, as its purchasing power increases relative to other currencies. Conversely, those with higher inflation typically see depreciation in their currencies compared to that of their trading partners, and it’s also typically accompanied by higher interest rates.
Government debts also play a part in inflation rates. A country with government debts is less likely to acquire foreign capital, thus leading to inflation.