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    Effect of factors on currency exchange rates

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    Currency exchange rates are affected by many factors. Determine the effect of the following factors on the rate of currency exchange between 2 countries:

    Interest rates
    Public debt
    Current account debt
    Economic performance
    Political stability

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    Solution Preview

    Currency Exchange rates determines the economic health of the country and affects the trading relationship of two countries. . There are various factors which affect the currency exchange rates, let's discuss few of them.

    1. Inflation
    2. Interest rates
    3. Public debt
    4. Current account debt
    5. Economic performance
    6. Political stability

    Inflation: Inflation in the economy causes the prices of goods and services go up in a period of time. It reduces the purchasing power of the country and which in turn causes the currency value to decrease. Countries with higher inflation suffer from depreciation of the currency in relation to the currencies of their trading partners.

    Interest Rates: If the economy is underperforming, ...

    Solution Summary

    The effects of factors on currency exchange rates are examined.