are the factors that impact the equilibrium of exhange rates independent of each other?

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Expert Solution

Solution
	There is 8 key factor for Exchange rate flucutation among them 3 there for equilibrum factor.

1	Current account
2	Inflation rate
3	Interest rate

1	Current account

-	current account represents the demand and supply of foreign exchange which ultimately determine the value of the currency. When the current account of a country is continuously deficit, it implies that the demand for the currency of the country is lesser than its supply. Therefore, its value in the market declines. if the demand of the currency is high then its market value is high and its price is of currency become high

2	Inflation rate

-	Inflation rate of one country is low which means apprciation in money value which is through the value of money is high
-	In other words a higher rate of inflation in the brazil than in china will lead to depreciation of the depreciation of the brazil dollar relative to the Yuan or, to an appreciation of the euro relative to the brazilian dollar. In general, a nation running a relatively high rate of inflation will find its currency declining in value relative to the currencies of countries with lower inflation rates.

3	Interest rate

	Interest rate of th country increased which means demand of money is become low due to which price of money is low

	Conclusion :- The factors that impact the equilibrium of exhange rates dependent of each other.

jeff jeffy answered 1 year ago

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