When valuforex trading accountsg a countrys currency in terms of another countrys currency, fundamental analysis includes the study of macroeconomic indicators, asset markets, forextradingaccountstype political factors Macroeconomic indicators include figures such as economic growth rates, calculated from factors such as gross domestic product, interest rates, inflation rates, unemployment rates, money supply, foreign exchange reserves, and productivity Asset markets include stocks, bonds, and real estate Political factors can forextradingaccountsregisterometimes, governments intervene in the currency market to prevent significant deviations from undesirable levels of the currency. The PPP theory states that the exchange rate is determined by the relative prices of the same group of goods and that changes in the inflation rate should be offset by changes in the exchange rate in equal but opposite directions. If the prevailing market rate is $1.70 per pound, then the pound is said to be undervalued and the dollar is said to be overvalued. Another shortcoming is that it only applies to goods, but ignores services, which can have a very significant value differential. Prior to the 1990s, the PPP theory lacked a factual basis to prove its validity. After the 1990s, the theory seems to be applicable only to long cycles (3-5 years) in which prices eventually converge to parity over such a span of time 2. If the cashback forex.S. interest rate is higher than the Japanese interest rate, then the dollar will depreciate against the yen by the amount that would prevent risk-free hedging, depending on the future exchange rate reflected in the forward rate specified on that date. In contrast to the theory that interest rates are still valid, currencies with high interest rates usually do not depreciate, but rather increase in value due to the forward suppression of inflation and the fact that they are efficient currencies. After a period of adjustment, the volume of imports is forced down and the volume of exports rises, thus stabilizing the trade balance and currency toward equilibrium. Trade in goods and services, ignoring the increasingly important role of global capital flows In other words, money chases not only goods and services but, more broadly, financial assets such as stocks and bonds Such capital flows enter the capital account item of the balance of payments and can thus balance the deficit in the current account The increase in capital flows gives rise to the asset market model 4. Asset market model (the best model so far) The rapid expansion of trade in financial assets (stocks and bonds) has led analysts and traders to look at currencies in a new light Economic variables such as growth rates, inflation and productivity are no longer the only drivers of currency movements The share of foreign exchange transactions originating from cross-border financial asset trading has dwarfed currency transactions arising from trade in goods and services The asset market approach views currencies as asset prices traded in efficient financial markets As a result, currencies have increasingly shown their close association with asset markets, particularly equities.5 The U.S. dollar and U.S. asset markets In the summer of 1999, many authorities concluded that the dollar would depreciate against the euro, citing the growing U.S. current account deficit and economic overheating on Wall Street.6 This view was based on the theory that non-U.S. investors would take money out of the U.S. stock and bond markets and put it into Such fears have not dissipated since the early 1980s, when the U.S. current account grew rapidly to a record high of 3.5% of GDP, as it did in the 1980s, and foreign investors appetite for U.S. assets remained so voracious, but unlike the 1980s, the deficit disappeared in the 1990s. disappeared While the growth in foreign holdings of U.S. bonds may have slowed, the steady flow of capital injected into the U.S. stock market more than offset this slowdown In the event of a U.S. bubble burst, the most likely choice for non-U.S. investors would be safer U.S. Treasury securities rather than eurozone or U.K. equities, which were likely to be hit hard in the above events in the 1998 In the former case, net purchases of foreign Treasury securities almost tripled to $44 billion, while in the latter case, the indicator more than tripled tenfold to $25 billion. Although improvements in the fundamentals of the eurozone economy will certainly help the young currency regain its lost ground, the fundamentals alone will hardly support this recovery, which is still characterized by the creditworthiness of the ECB; as of today, the creditworthiness of the ECB is inversely related to the frequent verbal support for the euro, the stability of the governments of the triumvirate of the eurozone (Germany, France and Italy), as well as to the expansion of the European Monetary Union. The looming risk of an expansion of the European Monetary Union, among other sensitive issues, is also seen as a potential impediment to the single currency. At present, the dollars stability is due to zero inflationary growth, the safe haven nature of the U.S. asset market, and the euro risk mentioned above.