Explore BrainMass

Explore BrainMass

    Interest rates

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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

    Solution Preview

    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.

    - Inflation

    high inflation => currency loses value quicker => foreigners do not ...

    Solution Summary

    Interest rates