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International Finance: Affect of inflation on exchange rate

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How does inflation affect the country's exchange rate?

How is the equilibrium exchange rate determined and what factors affect it?

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Solution Summary

This solution discusses the affect of inflation on exchange rates.

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1. Inflation plays a big role in global marketing and global currency. The government can control a country's economy just by changing their demand and supply of the issued money. When inflation goes up, the consumers will hurt the most and also the marketers (because they have to pay more for the same goods). Inflation also plays a very important role that determine one dollar today worth more than one dollar ...

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