Can someone explain to me what makes a currency strong please?

Question

I might sound daft here ( in fact i will, its a definate) , but who controls how much money a country produces?

Answer 1

A currency is "strong" if theer is a high demand for it. The more people demand a currency the higher it's value relative to other currencies but this is true only if the exchange rate is allowed to fluctuate.

Example: the exchange rate is 1 € is worth 1 $

there is a sudden huge demand to import cars from europe into the US

to pay for these cars € must be purchased with $

because of this demand the price of 1 € in dollars goes up (as demand increases price will always increase) so by the end of the period there is a new exchange rate

1€ = 1.1 $ in other words you can now by more dolars with your euros as the euro has become stronger against the dollar

this is the tip of the iceberg but hopefully you get the idea

Answer 2

In currency exchange, currency is a traded commodity, much like gold, diamonds or oil. Simply put, the value of a currency (relative to other currencies) depends purely on how much people want to own that currency compared to others. If a currency has higher interest rates, it will be more attractive to place cash deposits (which earn interest) in that currency than in one with lower interest rates, all things being equal.

A second factor is what is known as the "money supply", or how much currency is actually in circulation - again, other things being equal, the more there is, the less valuable it is, in much the same way as the value of shares in a company is diluted if more shares are issued. In most economies the money supply is controlled by a central bank (US: Federal Reserve, UK: Bank of England, Eurozone: European Central Bank, Japan: Bank of Japan). However remember that foreign exchange is only a minor use of the currency - the primary use is internally within the relevant economy, and the amount of currency in circulation depends heavily on the size of the relevant economy - the bigger the GDP the more currency is needed, so obviously the supply of US dollars is much higher than, say, Turkish Dinars, regardless of their relative value.

However one of the major factors in currency exchange is the "desirability" of the currency to traders, which is largely determined by what they THINK is going to happen to the relative value of the currency in the future. If you think that the dollar is about to rise, for example, then you would switch your cash deposits into dollars, because when you later switch back to other currencies you will have made a profit, potentially much higher than any interest you could have made. The fact that people are buying dollars in this way, of course, actually CAUSES the value of the dollar to rise. So basically if enough traders believe that a currency will rise or fall, then this is basically what's going to happen, regardless of what the government or central bank does.

Answer 3

Currency is strong due to following reasons:-
i)the economy of the country is sound and strong
iii)low rate of inflation
iv)low rate of interest
v)political stability
vi)confidence of other countries
The money supply(printing )is controlled by the Central Bank of the country.USA -Ferderal Reserve,UK-Bank of England,India-Reserve Bank of India.

Answer 4

There are two factors determining strength of currency- 1. GDP and Balance of Payment in foreign trade. Expanded GDP and healthy Balance of Payment in foreign trade makes a currency strong.

Answer 5

It depends on the economy. If you just print more money than your economy justifies you end up with worthless currency like Germany had in the 30s.

Answer 6

Currencies are stronger when there is more demand for that currency than supply - usually when exports of that country are stronger or if business is brisk that it attracts a lot of foreign direct investments.

Answer 7

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Answer 8

What makes it strong..when they are making the special paper they add fibers to it so that way you can fold it and fold it and fold it and it lasts longer than regular paper.after you fold paper so many times it fails and tears.Not so with our good old George Washingtons through Ben Franklins.

Answer 9

the one who controls the currency is the stock market...depend on country's import/export...

Answer 10

It gets strong by going to the gym everyday...