Currency exchange rate is a country’s currency expressed in foreign currency’s terms. This is affected by the forces of demand and supply in the currency market. Currency exchange rates are essential whenever making investment decisions. Investors tend to invest in countries where the exchange rate is high as in so doing their returns will be maximized. The investors also use the exchange rate for speculative purposes when carrying out foreign exchange market transactions. For instance in instances where the exchange rate has been increasing the investor will be able to speculate a future increase in the rate. Various factors however are responsible for the variation in the exchange rate, this includes: inflation, political reasons, economic factors and the monetary policy of a country .i.e. interest rates changes.
