What factors underlie currency exchange values

Reference no: EM131900037

Problem

1. In a free market, what factors underlie currency exchange values? Which factors best apply to long-run exchange rates and to short-run exchange rates?

2. Why are international investors especially concerned about the real interest rate as opposed to the nominal rate?

3. What predictions does the purchasing-power parity theory make concerning the impact of domestic inflation on the home country's exchange rate? What are some limitations of the purchasing-power-parity theory?

Reference no: EM131900037

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