FOREX ECONOMIC

Foreign exchange rates are mostly affected by the demand and supply of the particular currency of the respective country, Again this demand of foreign currency affected by the economic condition of the country. So, study of economic condition of a country can better elaborate the state of condition of a economy.
        Countries are referred as developed or developing on their economic conditions. Forex analyst, Economist, Financial Analyst and many more use economic indicators to study the prevailing economic condition in the state as well as for predicting the future economic growth and state of the economic.
Concepts of Economic Indicators:
Economic indicators are nothing but the figures and statistics that are released mostly weekly, monthly, quarterly or half-yearly and yearly to gauge the current state of the particular economy. Further, we say that, any economic statistic that indicates the current level of economic growth and forecasts the future rate is called an economic indicators. These statistics are very large but using some of the important figures and interpreting this accurately can make a good understanding about the economy whether it’s condition is stagnant, growing or growth is begin to start. Some of the important economic indicators are; GDP, Inflation Rate, Unemployment, Interest Rates and Foreign exchange reserves. Economic indicators are featured in three different ways according to their relation with  (a) The business cycle, (b) Frequency, (c) Timing. 
Related to Business Cycle/Economy:
According to business cycle give a idea about the direction of an economy is moving towards and the indicators are classified as below:
o    Procyclic : Economic indicators that move in the same direction as the business cycle or economy are known as procyclic indicators. For exa: GDP is a procyclic indicators as this figure increase in boom period and decrease in recession or keep stagnant during freeze period.
o    Counter-cyclic: During this condition indicators are move opposite to business cycle. For Exa: The unemployment rate increase during recessionary period and decrease during growth period.
o    Acyclic: Economic indicators that are not linked in any way to the changes in business cycle or current health of the economy are known as Acyclic indicators. For Exa:- Distribution of income among individuals in an economy doesn’t bear any relationship to the changes in the economy.
Frequency of Data:
Depending on frequency of data released economic indicators are classified into quarterly indicators, weekly indicators, monthly etc.
Timing:
Based on timing economic indicators are classified as leading indicators, lagging indicators and coincident indicators.
o    Leading indicators: These indicators are change even before changes occur in the economy or business cycle. These indicators can better evaluate the future of economy that how it will go. Changes in the stock prices in an economy occur prior to the changes in the business cycles. So, stock price is a leading indicator in an economy.
o    Lagging indicators: Indicators that show changes after the changes in the business cycle are known as lagging indicators. Unemployment is the good example of lagging indicators.
o    Co-incident indicators: These indicators occur along with the changes in the economy. Personal income is a true example of this type of indicators.
Classification of Economic Indicators Explanations:
We have already discussed that any indicators that helps evaluate the present state of the economy and estimate the future growth of economiccalled as economic indicators. Now lets start understanding of these concepts separately. Generally, these indicators fall in three categories as :- Genaral Indicators, Business indicators and Consumption indicators.
General Indicators: 
These indicators are representing a economy as a whole as well as affected the global economy also. The various indicators under this heading are discussed bellow:

GDP: In simple word we say GDP is the total revenue or income of the economy. Gross domestic product is the value of the total final output of all the goods and services produced within a country i a single year. Normally, GDP data is published every three months. Variation in the GDP may have the following impact over the economy.
o    Decrease in GDP growth rate of a country indicates that the economy is moving in slow pace.
o    If the growth rate is growing unexpectedly then we understand that the inflation is prevailing in the economy.
o    Unexpectedly high growth might lead to expactation that there will be an increase in interest rate because of tackling the high inflation. Which in turn, affect the exchange rate to appreciate.
Inflation: Generally rise in prices of goods and services in the economy called as inflation. But, mere increase in prices of some items does not mean a inflationary situation. A continues increase in price levels levels of an economy over a period of time is called inflation. It is measured as a percentage increase in CPI. The changes in inflation rate released in weekly basis. Impacts of variation discussed bellow:
o    Decrease in purchasing power of people in economy.
o    Decrease in savings, hence affect banking systems.
o    Falling in real income and people facing a cut in their wages & salaries.
o    Falling in real interest income as rate of inflation is high against interest rate.
o    There are many other effect like high cost of borrowing, Business competitiveness and Business uncertainty etc.
Interest Rate: An interest rate is the rate charged or paid for the use of money, normally expressed as a percentage. Increase in inflation rates leads to increase in cost of capital and reduce the borrowing habit of people and business houses. Ultimately this leads to slowdown in economy activity.
Unemployment Rate: The unemployment rate refers to the number of unemployed people or citizen as a percentage of the total workforce or labour-force in the economy. Here the total number of workforce include both employed and looking for jobs in the market. But, we can’t take all the citizen of the country to gauge the total number of workforce because infants and students and the senior citizens are not looking for job or they might be un-fit. Unemployment vary according to changes in business cycle. It is occured after the changes in the business cycle thus, it is a lagging economic indicator. During the inflationary period business face recession and the companies are go through cut-throat competition in the market. As a result they establish cost-cutting method to at-least cover their fixed cost. Finally, a large number of people loss their jobs. In this way, when the opposite scenario occur that is boom period companies hire more & more people to improve their profits. by increasing productivity. Thus we say that unemployment rate is a counter-cyclic indicator of economic activity.
Foreign exchange reserve: Foreign exchange reserve refer to the amount of foreign currency held as a reserve by a country’s banking system for it’s international transactions and payments. Generally, country’s net export drive the increase in foreign currency and the adequacy of foreign reserves determined by two major factors that are;
o    Demand for the country’s own currency.
o    People perception of currency.

International trade: International trade shows the data of net export or import. When exess of export occurs over import it is called as net export and the vice-versa represents net import. Whereas, net export implies more foreign currency income by a country but net import signifies a trade-deficit in the nation.During the boom period, a country’s trade balance shows more import over it’s export.Because in the boom period the economy shows a stable or low inflation. Hence, people’s purchasing power increases as a result of the consumption increases. So, country need more product or service to tackle out this demand and it is fulfilled by doing more import and finally the trade-deficit occured. Therefore, we say that country’s trade balance is a counter-cyclic indicator of economic activity. Trade data is also a coincident indicator of the economy as the changes in the international trade occur along with the changes in the business cycle of the economy

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