How does political crisis and natural calamities affect the forex market

POLITICAL CRISIS

Political factors like regime type, political stability, management, corruption, and trade laws affect economic development.

Regime, when the govt changes means there might be a change in policy approaches to fisical policy, trade and economic drivers.political environment provides a basis for businesses to develop, economic and trade relationships.

Elections also affects both domestic and foreign  investment because people are not sure of the results of the elections and changes that may be brought about by the new governments. For instance change in the US government with the regime of President Donald Trump has not left the dollar the same.

NATURAL CALAMITIES

Natural calamities such as floods, famine and drought,earthquakes, hurricanes and tsunami have a negative effect on the countries economy. They inflict a serious damage on people and firms by destroying tangible assets like buildings and equipment, killing people and destroying industries and firms.  The damage caused by these natural calamities may lead to closure of some industries and cuts down production which is not good for the economy. This increases government expenditure as well as the country’s debt.

Serious earthquakes and tsunami have hit Japan several time and this is one of the major factors that have led to the slow down of japans economy(Japan tsunami and earthquake 2011)

How do natural calamities affect the forex market

The damage caused by these natural calamities may lead to closure of some industries and cuts down production which is not good for the economy. This increases government expenditure as well as the country’s debt. As a result, the countries currency in question falls in value and due to uncertainty. Most investors will opt for higher yielding economies for their investment.  Most traders will sell off their positions in the market running to safe haven currencies.

On the other hand, some countries like Japan has never stopped surprising investors during its natural calamities crisis. As traders expect the Yen to fall after such a tragedy, instead it makes strong moves in the market indicating appreciation in its value. 

The yen appreciated sharply due to investors belief that there would be large levels of asset repatriation to pay for claims and damages by Japanese insurance companies.  In addition, Japanese investors bring their overseas investments back home, hence strengthening the Japanese yen in the process.

 

 

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