how do catastrophic world events affect the foreign exchange market?

Answer 1

Natural disasters, catstrophic events etc; are called shocks to the Economy. Say for example a region is hit by Tsunami. The production in that areas gets dissurupted and will be forced to import everything till things are set right. So the import goes up and since the manufacturing is affected exports decline and the balance of payment deficit occurs, which in turn causes demand for foreign currency to go up and demand for your local currency to go down thus devaluing your currency. Hope that helps.