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Interest rates

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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?

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Interest rates

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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 ...

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