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.