Question

Question 1. What is effect of international finance in changing in interest rate towards exchange currencies value?  

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Answer 1

International finance sometimes known as International macroeconomics is a section of financial Economics that deals with the monetary interactions that occur between two or more countries this section is concerned with topics that include foreign direct investment and currency exchange rate. other factors being equal, are you interested in a country increase the value of that countries currency relative to Nations offering lower interest rates. How to set simple straight line calculation really exist in foreign exchange all the interest rate can be a major factor influencing currency value and exchange rate the final determination of currency exchange rate with other currency is the result of number of interrelated elements that reflect the overall financial condition of a country in respect to other Nations. Generally higher interest rates increase the value of countries currency. Higher interest rates tend to attract the foreign investment increase the demand for in the value of home currencies conversely lower interest rates tend to be an attractive for foreign investment and decrease the currency's relative value. The simple occurrence is complicated buy a host of other factors that impact currency value and exchange rate one of the primary complimenting factors is the relationship that exist between higher interest rates and inflation If a country can achieve successful balance of increased interest rate without an accompanying increase in inflation its currency value and exchange rate is more likely to rise. Changing interest rates are away for a federal reserve to help the economy more towards sustain it normal growth when the fed makes interest rate changes it does not necessarily affect all the consumers. On the other hand monetarists believe that higher the interest rate reduces the demand for money which leads to depreciation of currency due to high inflation but the Nexus between the interest rates and exchange rate can be explained why the expected change in exchange rate. Interest rates are important indicators for exchange rate trends and can help traders game market Insight under the theory of purchasing power parity the change in the exchange rate between two countries currency is determined by the change in their relative price levels locally affected by the market. The bretton woods system which was introduced in late 1940 establish to fixed exchange rate system having been agreed upon by the conference by more than 40 countries that participated the system was developed to give structure to International Monetary exchange and policy to maintain stability International finance transactions and interactions. International foreign trading is arguable the most important factor in the prosperity and growth of economy that participate in the exchange the growing popularity and the rate of globalisation has magnified the importance of international Finance another aspect to consider in terms of international finance is that the United States have shifted from being the largest International creditor and has since become the world's largest international debtor the United States is taking money and funding from organisations and countries around the world . The institutions that set exchange rates around the world there are three main faces the error of gold standard the error of Britain wood the modern era of floating exchange rates where exchange rates are allowed to move flexibly. However the impact of higher interest rate is mitigated however if the inflation in the country is much higher than in others or if additional factors serve to drive the currency down the opposite relationship exist for decreasing interest rates that is lower interest rates tend to decrease exchange rate. The international finance plays a great role in changing interest rate towards exchange currency values why the rates are changed a country's terms of trade improve if its export price rise at a greater rate than its import Crisis this result in higher revenue which causes a higher demand for the country's currency and an increase in its currencies value this results in an appreciation of exchange rate.