A change is shown by a market based exchange rate whenever there is a change in values of either of the two component currencies. Whenever the demand for a currency is greater than the available supply a currency will tend to become more valuable. Opposite will be the case whenever demand is less than available supply means a currency will become less valuable in this case, but this does not mean that people no longer want money, what it means is just that they prefer to hold their wealth in some other form, may be possible in another currency.
The currency’s demand is increased due to either an increased transaction demand for money, or an increased speculative demand for money. There is a great correlation between the transaction demand for money and the country’s level of business activity, gross domestic product (GDP), and employment levels.
