# “Why is the dollar falling?” Is the answer to all times.

#### What determines the exchange rate?

Today is July 4, 2014, and today the dollar is falling or rising, it was 5 or 10 years ago and it will be like this in 5 or 10 years. Of course it will be so if there is a dollar as such, but this is not about it now. Actually, not even about the fall or growth of the dollar will be discussed, but about the fall or rise of some currencies relative to other currencies. And about the people who ask questions from the title. The fact is that such questions are asked by people who do not have broad knowledge in the field of foreign exchange, money and stock markets. As a rule, such questions are accompanied by questions like: “In which currency should the savings be kept ?” .

Friends who are in the course of my occupation often ask me this question. I always answer with a smile: “I do not know!”. And I add something, but this is at the very end. So, we are primarily interested in why the dollar falls against the ruble? In order to answer this question, it should be understood that currencies do not fall by themselves, but in relation to each other. Dollar to ruble, euro to Swiss franc, peso to the dollar and so on. This happens because commodity-money relations exist between countries. Consider a simplified scheme of financial relations of countries. Imagine that two countries that are not familiar with each other and who have not previously entered into such relations have met and have the need to exchange goods. Then one country will exchange the coal, which she has in abundance, for wool, which is in wealth in another country. They will agree on the quantity on both sides of the transaction.will take place. But what to do if the next time, only one side will need a product, for example wool, and the second coal will no longer be needed? Of course, she can still take the coal, but exchange it with a third party for something more necessary. In order not to move heavy objects in space, currencies were invented long ago. With the availability of currencies in our simplified system, one country will buy goods from the second country for money (the currency itself). For her, he will buy goods from a third country, BUT !!! A third country must be sure that it can buy coal from the first. If she is not confident enough in this, then selling her goods for this currency will be more expensive (this currency will grow in relation to the product). If you are not sure at all, then you will not sell the goods for this currency at all (the currency will depreciate). Let us complicate the system: let us imagine that a third country maintains relations with the other side with the 4th and 5th countries, in the same way as it conducts them with the 1st and 2nd. It turns out that the same story is played out mirror on the other side. Another currency is falling or rising against the same commodity. Next begins mathematics 5th grade school. We have two simple fractions with identical components, we reduce these components. We get a simple fraction – the ratio of one currency to another.

#### Why do the prices of Euro, Dollar, Ruble and other currencies change?

In a simple system, everything is just like in real life, except that there are more than a hundred currencies in the world. Countries more than 2 hundreds. And they all constantly interact with each other. Currencies are constantly moving relative to each other, but still making some kind of deal, one country asks the question: “How confident am I in the currency of my counterparty?” . Is it not worth raising the price in this currency and omitting the price in another? Let’s talk more about the reasons for the change in the opinion of one country about the currency of another country. In the real world, Russia, selling gas to Europe for dollars, asks: “Could I use dollars further?” , “Will I be able to buy goods from other countries for these dollars?” . Ultimately, all countries using dollars are wondering:“Will America accept its dollars for any brands (gold in this case can also be considered a commodity) in the future?” “. What does it depend on, will America accept dollars?

#### Macroeconomic causes of rising and falling dollar

In the US, goods must be produced in order to be able to give them in exchange for dollars that are in the hands of other countries. If there are prerequisites for a decrease in the production of goods, then the dollar will fall. If production grows, the dollar grows. Overproduction is also harmful, because threatens to make anyone unnecessary product that can be obtained for dollars.

#### Political reasons for changes in exchange rates

It should be understood that information on production and other indicators of the economy can not be 100% objective, because considered and made available to the public by the interested party. Confidence in such information can influence the confidence in a currency, and, as a result, its rate. But it is rather not politics, but psychology. Politics is the ability to play on psychology. A war in any region of the country will certainly lead to a drop in the exchange rate of this currency for some time due to fears of other countries. And after some time, it may be understood that this is not a war, but a troop raid on oil treasures. In addition to wars, of course, there are a lot of other political actions. From the statements of politicians and economic agreements, to joint expeditions to Mars. Everything affects currency rates.

#### Currency manipulation

If there are clear reasons for the decline and appreciation of currencies, then there are those who want to take advantage of it. You can believe in the development of the global financial system and its self-regulation as much as you like. But the fact is that in short time intervals even a simple person is able to change course by a certain amount. You have probably heard the following announcements in the news: “Bank of China keeps the yuan rate” , “Central Bank of the Russian Federation entered the foreign exchange market ” , “US Federal Reserve lowered the refinancing rate” . All of these are ways to influence the rate of your currency. Sometimes conscientious and heal the economy. Sometimes aimed at weakening another currency. Is it bad or good? Two countries on the same planet are competition.. On land, on water and in the foreign exchange market.

#### Is it possible to predict the dollar rate?

You can predict! But always with a certain amount of assumption. One should always have a plan in case something goes wrong. You need to be able to quickly shift the risk from one currency to another. Even more important is the forecast period. If you build a forecast for several years, then it will be enough to respond to the change in forecast within a month. If you forecast for a few days, then everything can change at any minute and you need to keep your finger on the pulse. Yes, one more trifle: in order to predict the movement of exchange rates, you need to have a very good education and a lot of experience))

#### What currency to store savings?

As promised – I answer! If you are not an expert, do not try to seek advice from friends or even more financial advisors from companies with a large number of clients. Keep in your own currency and several common ones. Total: local currency, dollars, euros, yen. And if you still read it to the end, then you are probably ready for something more complicated. Keep money not only in currencies, but also in stocks. On this site there is enough information about how to choose stocks for trading, for investment and how to choose a company for this. I think it is not worth mentioning that I recommend United Traders as the most reliable broker))) Good luck to all! Write to whom it was useful, let’s talk.