Which is the importance of the evolution of the foreign currencies?. Considering that you are in a market that is based on the purchase and sale of foreign currencies, the evolution of these is the first that you have to consider. The evolution of the exchange rates can be a fundamental factor when planning investment strategies.
In Forex the dollar, euro, yen, pound and Swiss franc are commercialised, these currencies have the support of the strongest economies of the world and that’s why this is an advantage of which you should take advantage when doing an investment.
The evolution of foreign currencies depends on many factors that have to do with the situation that influences the cyclical movements of the value of the foreign currency. I will mention an example to explain what I have said ’till this moment.
The euro was introduced in Europe in 1999 after a year of stability of the markets of europe. During the first years the currency reduced its value because of many cyclical factors of the market economy, anyway, in those days noone imagined the evolution that the Euro would have after seven years of life.
The evolution of the euro produced a revolution at the monetary market as during the first months it provoked a great demand turning to be over the dollar. After a growing period the evolution of the foreign currency euro falled because of the low growing rates of the european economy and of the high levels of unemployment that were registered.
Nowadays, after seven years from the moment that Europe adopted the euro as a unique currency, the situation has changed, as the stability of these nations has made that the evolution of these foreign currencies become favorable and continue raising in front of the dollar.
What I really would like to explain with this example is that, analise the international situation is a very useful mechanism to see the evolution of the foreign currencies. The variation in gold prices, crude or the economic indicators of the principal economies of the world can be a vital tool to have a profitable investment.

In the year 1776 Adam Smith published the book “The Wealth of Nations”. In which the principal ideas of the liberal stream of thought were summed up. According to Smith, the working of the market is because of the invisible hand. This allows the economy to be efficient, that means that people can satisfy their needs in the cheapest possible way without wasting or stop using the available resources.
Adam Smith set up the basis of the rules of the capital market regulated by the supply and demand of foreign currencies. The forex market is an example of that, as in that place currency quotations are established based on the supply and demand of foreign currencies.
The origin of the supply and demand of foreign currencies at the capital market is originated through various factors.
For example, the supply of foreign currencies is originated from the active transactions of the payments balance, as exports of goods and services, incomes from investments of the country abroad.
The origin of the demand of foreign currency is originated on passive transactions or debits of the balance: imports of goods and services, payments for the performance of the foreign investment in the country, donations and money orders sent by residents and exports of non monetary capital; the most stable element of the demand is about the import of goods and services.
The exchange rate of a currency is only the balance between the supply and demand of this currency. The flows of international currencies are the ones that determine the dimension of both curves. The supply of a foreign currency will depend on the exports of goods and services of the country and the demand depends on the imports of goods and services, of the transfers done to other countries and the outflows of capital for different reasons.

Which are the factors that determine the foreign currencies supply?The foreign currencies market is the market in which the different foreign currencies are marketed and it is constituted by many agents from all over the world.
The exchange rate that a nation adopts is a fundamental factor to generate a major supply of foreign currencies. Which allows the exchange rate is the conversion of the currency of a country in the currency of other country, making easier the international commerce of goods and services and with this, facilitate the income of foreign currencies as a consequence of the exchange of goods.
Foreign currencies supply is determined according to the amount of foreign currencies that come into the country, either for exports of goods or services, or for the performance of the investments in other countries.
In emerging economies, the devaluation of the currency is usually one of the most efficient methods to generate a greater supply of foreign currencies. In Latinamerica, for example we find two very different economies where the level of devaluation is very different and this answers to different causes.
Argentina and Brazil are the strongest economies of South America. Argentina after the terrible crisis of 2001 decided to devaluate the peso to generate a major supply of foreign currencies in its frontiers to incentivate the exports.
The case of Brazil is very different to the one of Argentina as this has an important industry and did not have such a crisis in these last years, that’s why its currency is not devaluated according to the dollar. The Brasilian real quotes actually at 1,83 reales per dollar, while the argentine currency is at 3,20 pesos per dollar.
To sum up, the exchange rate that a country has is to generate or not a major supply of foreign currencies, this decision will show the direction in which the economic model is going.