Exchange rates-valuation from interest rates-inflation rate

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Exchange rates, in simple terms, is the valuation of 1 currency in relation to a second currency. As many of you have stated, various factors play into this valuation from interest rates, inflation rates, expectations (economic growth, consumer spending, national deficits, monetary policies, etc), political stability, etc. A by-product of this is cross rates, which usually arises because the currency in question is not often traded, so no quotes are maintained and is, therefore, a derivative calculation of currencies it trades with. In general, a falling rate (value) of a currency is bad news because its purchasing powers declines and it means that confidence has been lost. Conversely, it could mean that confidence in the opposing currency has improved. Can you please expound?

Reference no: EM131096226

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