How do changes in interest rates, inflation, productivity, and income affect exchange rates? Is a strong U.S. dollar always good for the U.S. and global economies? Why or why not?© BrainMass Inc. brainmass.com October 10, 2019, 1:31 am ad1c9bdddf
First, we want to see which of these changes affect exchange rate.
- interest rate,
interest rate increases => domestic investment (such as domestic bonds) become more attractive => foreigner want to invest in your country => they buy your currency in order to invest in your country => currency appreciates, and vice versa.
high inflation => currency loses value quicker => foreigners do not ...