A forex Converter is a program that gives the value of one currency against another in real time. There are literally thousands of converters online all with the same function. Most of these converters are easy to use and list all the world’s currencies.

Most Forex converters are pretty straightforward and easy to read. Currencies are usually traded in pairs and most Forex Converters give current quotes in pairs. Most also have the ability to convert specific amounts of one currency into another. But what are the factors that make one currency more valuable than another? What causes the value of a currency to rise and fall?

First, who determines currency value? Currency value is generally determined by central banks, investors and Forex traders, and the laws of supply and demand. Central banks and large banks account for most of the world’s trade in currencies. Central banks set monetary policy that affects the value of that nation’s currency.

Several factors can affect the value of a specific currency. Some of these factors are;

Economic conditions- Economic factors affecting currency include inflation, monetary policy, unemployment, Gross Domestic Product, infrastructure, agriculture, balance of trade, government deficits, housing markets, and economic indicators.

Political Factors-Political stability, form of government, relationships with other countries, socialism vs. free market economy, and perceived political direction. (Liberal vs. conservative, democratic vs. totalitarian)

Natural resources-The possession of large reserves of natural resources and how they are exploited can have a great effect of a country’s currency. The use of advanced technology to use natural resources to the fullest is also a major factor. This would also include agriculture.

Educational level of the populace- An educated population is a great asset for any country. The amount of innovation and the development of new technologies depend on an educated population. Countries with low educational levels usually have currencies worth much less than those of countries with an educated population.

Believe it or not the perception of a country from outside can, and does, have an effect on the marketplace. The best and most recent example would be the current US financial crisis. World currency markets were closely watching the political situation in the US and any move the US congress made sent ripples through world markets.

While the above list is by no means complete it does list the more important factors that affect currency values. Looking at a typical Forex Converter one does not see the many factors behind the numbers displayed and the average Forex investor usually leaves researching these factors to their broker.