Factors affecting exchange rate Flashcards
How does the current account status influence exchange rate
country makes alot of exports = increase demand for currency
country importing more = less demand for currency
Summary:
deficit = depreciation
surplus = appreciation
How does inflation influence exchange rate
Low inflation means more competitive exports since they are cheaper. Increased exports
Increased exports = appreciation
How do interest rates influence exchange rates
high interest rates makes more attractive for investors so hot money flows in
increased demand = appreciation
if low then likely to depreciate
How does economic growth influence exchange rates
high economic growth = more FDI therefore more demand for pound = appreciation
How does speculation influence exchange rates
traders predict exchange rate to rise and demand of currency = appreciation
How does political and social stability influence exchange rates
investors place money in safe places.
if unstable then depreciation will occur.
