Editing Exchange rate (section)

==Fluctuations in exchange rates==
A market-based exchange rate will change whenever the values of either of the two component currencies change. A currency becomes more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply (this does not mean people no longer want money, it just means they prefer holding their wealth in some other form, possibly another currency).

Increased demand for a currency can be due to either an increased transaction [[demand for money]] or an increased speculative demand for money. The transaction demand is highly correlated to a country's level of business activity, gross domestic product (GDP), and employment levels. The more people that are [[unemployed]], the less the public as a whole will spend on goods and services. [[Central bank]]s typically have little difficulty adjusting the available money supply to accommodate changes in the demand for money due to business transactions.

Speculative demand is much harder for central banks to accommodate, which they influence by adjusting [[interest rate]]s. A speculator may buy a currency if the return (that is the interest rate) is high enough. In general, the higher a country's interest rates, the greater will be the demand for that currency.  It has been argued{{by whom|date=November 2011}} that such speculation can undermine real economic growth, in particular since large currency speculators may deliberately create downward pressure on a currency by shorting in order to force that central bank to buy their own currency to keep it stable. (When that happens, the speculator can buy the currency back after it depreciates, close out their position, and thereby make a profit.){{Citation needed|date=November 2011}}

For [[Ship transport|carrier companies]] shipping goods from one nation to another, exchange rates can often impact them severely.  Therefore, most carriers have a [[Currency Adjustment Factor (CAF)|CAF]] charge to account for these fluctuations.<ref name=CAF>{{cite encyclopedia
 | title =Currency Adjustment Factor - CAF
 | encyclopedia =Academic Dictionaries and Encyclopedias
 | url =http://investment_terms.enacademic.com/4858/Currency_Adjustment_Factor_-_CAF
 | access-date =2013-01-07
 | archive-date =2016-03-04
 | archive-url =https://web.archive.org/web/20160304234058/http://investment_terms.enacademic.com/4858/Currency_Adjustment_Factor_-_CAF
 | url-status =dead
 }}</ref><ref>{{cite web
 | title =Currency Adjustment Factor
 | work =Global Forwarding
 | url =http://globalforwarding.com/blog/currency-adjustment-factor
 }}</ref>