Factors influencing exchange rates, Managerial Economics

Factors influencing Exchange Rates

i. Inflation:  Other things being equal, a country experiencing a high rate of inflation will experience a lower demand for its goods while its trading partners goods whose rate of inflation is low will now appear cheaper to citizens who will thus buy more.  Thus demand for its currency will decrease while the demand for its trading partners' currencies will increase, and both the factors will cause a depreciation in the external value of its currency.  If on the other hand, a domestic rate of inflation is lower than that of its trading partners these factors will be expected to work in reverse.

ii. Non-trading factors:  Exchange rates re also influenced by invisible trade, interest rates, capital movement speculation and government activities.

iii. Confidence:  A vital factor in determining the exchange rate is confidence that most large companies "buy forward" i.e. they buy foreign currency ahead of their needs.  They are thus very sensitive to factors which may influence future acts such as inflation and government policy.

Thus, the exchange rate at any particular moment is more likely to reflect the anticipated situation on country rather than the present one.

Posted Date: 11/30/2012 5:30:42 AM | Location : United States







Related Discussions:- Factors influencing exchange rates, Assignment Help, Ask Question on Factors influencing exchange rates, Get Answer, Expert's Help, Factors influencing exchange rates Discussions

Write discussion on Factors influencing exchange rates
Your posts are moderated
Related Questions
PHILLIPS CURVE   The Phillips  curve,  named  after  A.  W.  Phillips,  describes  the  relationship between unemployment  and  inflation. In  1958  Phillips, then  professor a

Q. Types of Market Structures by the Nature of Competition? Conventionally, the nature of competition is assayed to be the basic criterion for distinguishing different types of

Q. Explain about Long run production function? Long run is a phase adequately long so that all factors together with capital can be changed. The factors that can be increase

Discuss the importance of dividend decisions

a) A country should always protect its domestic industries. Discuss. b) To what extent can a country actually rely on the principle of Comparative Advantage before engaging

SIGNIFICANCE  OF  THE  CONCEPT  AND THEORY OF SEARCH UNEMPLOYMENT   From what has been  said earlier, you understand the significance of the theory of search  unemployment  as

Short-Term Policies Deflation is a policy of reducing expenditure with the intention of curing a deficit by reducing the demand for imports.  This reduction of expenditure m

Discuss the applications of Managerial economics concepts or theories in managerial decision making question..

discuss the validity in zimbabwe of the grounds on which the profit maximising model of the firm has been defended

The quantity theory of money In the 17 th Century it was noticed that there was a connection between the quantity of money and the general level of prices, and this led to th