The two most important factors that influence the price of a currency are: 1. flow of capital 2. Trade flow these two components constitute what we call as balance of payments. The main purpose of the balance of payments is to quantify the demand for and supply of a currency of a country by in a given period. Balance of payments = capital flow + flow of trade a negative balance of payments indicates that capital leaving the country is greater than the capital that enters the country (demand is small). A positive balance of payments means that capital entering the economy is greater than the capital that is dating (increased demand domestic currency). Theoretically, a balance of payments equal to zero indicates the value true currency flow of capital the capital flow is the net amount of currency (sales and purchases) through capital investments. The flow of capital can be divided into: physical flow and flow of investment physical flow.
This flow happens when foreign entities sell their local currency and buy foreign currency for make foreign direct investment (to make acquisitions, etc.) when the value of this kind of investment increases, reflects a good state of the economy where capital is invested. Flow of investment. These are investments in global markets, fixed-income and variable (Forex, shares, notes, Government, etc.) Trade flow commercial flow measuring exports and net imports of a country. These two components constitute what we call checking account. Countries that have a positive current account (larger than imports exports) is more prone to devalue its currency. Thus foreign consumers perceive cheaper currency with which to buy goods or foreign services (can buy more goods and services).
A good example of this is Japan. Countries that have a negative current account (larger than exports imports) are more likely to appreciate its currency because they need to sell the local currency more face to be able to buy foreign goods and services at a lower cost. An example of this case is the United States. Many success Atte.