What decides the currency strength?

<p id="isPasted">If you are thinking of sending or receiving money from overseas, you need to keep a keen eye on the currency exchange rates. &nbsp;It may fluctuate daily with the changing market forces of supply and demand of currencies from one country to another. Some of the leading factors that influence the variations and fluctuations in exchange rates and explains the reasons behind their volatility.</p><p><strong>&nbsp;Inflation Rates</strong></p><p>Changes in market inflation cause changes in currency exchange rates. A country with a lower inflation rate than another's will see an appreciation in the value of its currency.&nbsp;</p><p><strong>Interest Rates</strong></p><p>Changes in interest rate affect currency value and dollar exchange rate. Forex rates, interest rates, and inflation are all correlated. Increases in interest rates cause a country's currency to appreciate because higher interest rates provide higher rates to lenders, thereby attracting more foreign capital, which causes a rise in exchange rates</p><p><strong>Government Debt</strong></p><p>A country with government debt is less likely to acquire foreign capital, leading to inflation. Foreign investors will sell their bonds in the open market if the market predicts government debt within a certain country. As a result, a decrease in the value of its exchange rate will follow.</p><p><strong>Political Stability &amp; Performance</strong></p><p>&nbsp;A country with less risk for political turmoil is more attractive to foreign investors, as a result, drawing investment away from other countries with more political and economic stability. Increase in foreign capital, in turn, leads to an appreciation in the value of its domestic currency.</p>