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Explain the main factors which determine …

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Explain the main factors which determine exchange rate?
  • 1 answers

Meghna Thapar 5 years, 5 months ago

Exchange rates are determined by factors, such as interest rates, confidence, the current account on balance of payments, economic growth and relative inflation rates. For example:

  • If US business became relatively more competitive, there would be greater demand for American goods; this increase in demand for US goods would cause an appreciation (increase in value) of the dollar.
  • However, if markets were worried about the future of the US economy, they would tend to sell dollars, leading to a fall in the value of the dollar.
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