3 Ways The Forex Market and Politics Can Impact Business Trade
The forex market is where all major and minor currencies are exchanged and, as such, is viewed as the backbone of international trade. Due to its influence on global markets, forex can have an immense effect on both international trade, such as importing and exporting costs, and domestic business where it can, in turn, affect the price of production and construction to name just a few.
As a result, today the forex education experts at Learn to Trade are detailing the 3 main ways that both major political events and the forex market can impact businesses trade and the importance of why your company should keep their ear to the ground when it comes to considering all things forex.
As seen in the UK’s recent parliamentary election, whether they’re expected or come as a complete shock, elections inevitably have a massive impact on a country’s currency value. Ultimately, this is because elections create a large amount of political uncertainty and typically result in periods of high volatility in the financial markets. As such, straight after a new face of power has been decided upon, currency values can increase or decrease depending on new financial policies.
As a result, for businesses based in countries where an upcoming election is due to be held – whether that be a political vote or a general election – trade will most likely be affected by this during the run-up. Because political votes tend to lead to a fall in currency value, this means that those businesses who import their stock from overseas are likely to suffer until the currency sees some form of recovery.
Importing and Exporting
Undoubtedly, global economic growth would struggle if not for the ability to trade in different currencies, as the transfer of resources and goods is paramount to creating supply and demand for those goods and services that uphold international economies. As such, the forex market plays a crucial role in supporting these import and export industries.
Importing and exporting fees can either be cheaper or most costly, depending on the differences in currency values – the values of which are impacted by high and low levels of demand by forex traders. Therefore, this can result in prosperous importing opportunities for countries with strong currency values, alongside aiding those nations with struggling currencies by offering better export rates.
One potential issue within the forex market, and indeed financial markets in general, is market manipulation. This is when traders, brokers, bankers or analysts create false or misleading appearances with regards to the price of a product, security or market demand to make it look like there’s less or more demand for a product or security. In forex, the closing currency ‘fix’ – as decided at 4PM in London each day – help best to reflect the value of one currency versus others and are the rates that most companies use to value assets, liabilities and more.
Should market manipulation occur, not only does it cause financial scandal, but businesses could be impacted due to valuations being off and trade, in turn, can be disrupted.
As a result of the above, we hope you will be able to see the impact that forex can have on both large corporations and SMEs all over the world. As such, do your research and remain aware of the direct impacts this lucrative market can have on both your industry and your individual business.
John James is a content writer for Learn To Trade, the foreign exchange education and learning specialists – offering a range of training courses to help people understand the currency trading market, as well as its opportunities and risks.