Foreign Exchange: Factors that Influence Interest Rates

Changes in foreign exchange rates can bring serious financial consequences for participants who trade in the foreign exchange markets. Hedge funds have faced bankruptcy, and individual traders have been fired for poor performance. Notwithstanding the familiarity of these participants with the foreign exchange markets, the uncertain and random nature of rate movements can deceive even the most experienced traders. Here we examine the difficulties in predicting such changes and in particular the macroeconomic influences on interest rates.