Fluctuation definition investopedia forex

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Currency fluctuation Currency Fluctuation A change in an exchange rate. Currency fluctuations happen constantly and occur for all floating currencies. Farlex Financial Dictionary. All Rights Reserved Currency fluctuation. A currency has value, or worth, in relation to other currencies, and those values change constantly. For example, if demand for a particular currency is high because investors want to invest in that country's stock market or buy exports, the price of its currency will increase.

Just the opposite will happen if that country suffers an economic slowdown, or investors lose confidence in its markets. We list below a few examples: The Asian Crisis of A prime example of the havoc caused by adverse currency moves is the Asian Financial Crisis , which began with the devaluation of the Thai baht in summer of The devaluation occurred after the baht came under intense speculative attack, forcing Thailand's central bank to abandon its peg to the U.

This currency contagion spread to neighboring countries such as Indonesia, Malaysia and South Korea, leading to a severe contraction in these economies as bankruptcies soared and stock markets plunged. China's Undervalued Yuan Between and , China held the renminbi steady at about 8. In , China responded to the growing chorus of complaints from the U. It allowed the yuan to steadily appreciate , from over 8. Because of Japan's policy of near zero-bound interest rates , traders favored the yen for carry trades , in which they borrowed yen for next to nothing and invested in higher yielding overseas assets.

But as the global credit crunch intensified in , the yen began appreciating sharply as panicked investors bought the currency in droves to repay yen-denominated loans. The euro recovered its strength over the next year, but that only proved temporary. Here are some suggestions to benefit from currency moves: Invest Overseas US-based investors who believe the greenback is weakening should invest in strong overseas markets, because your returns will be boosted by foreign currency gains.

For U. Invest in U. Multinationals The U. Earnings of U. When that happens, investors who are tempted to borrow in foreign currencies at lower interest rates should remember those who had to scramble to repay borrowed yen in The moral of the story: never borrow in a foreign currency if it is liable to appreciate and you do not understand or cannot hedge the exchange risk.

Hedge Currency Risk Adverse currency moves can significantly impact your finances, especially if you have substantial forex exposure. The Bottom Line Currency moves can have a wide-ranging impact on a domestic economy and globally as well. When the greenback is weak, investors can take advantage by investing overseas or in U.

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