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Identify two world currencies. To demonstrate variances in exchange rates, show the comparative value of the...

Identify two world currencies. To demonstrate variances in exchange rates, show the comparative value of the two currencies in 2000, 2010 and March 1, 2019 (value of one currency relative to the other). How have they changed over time? What are some reasons why?

*Please answer in DETAIL*

Solutions

Expert Solution

As per concept , an exchange rate is simply define as cost of one currency in terms of another currency. The relative value of one country's currency depend on many factors , some of them are :

  • differential in inflation rate (purchase power)
  • differential in interest rate
  • amount of export and import and its differential between two countries
  • government policy
  • intervention from central bank

here, the exchange rate between INR and US$ has been used to explain the concept :

Date Exchange rate Possible reason
1-Mar-00 INR 43.625/US$
1-Mar-10 INR 46.085/US$ Differential in exchange rate from base level of 1st march 2000 is due to differential in Inflation rate between two countries , and export import gap between the countries
1-Mar-19 INR 70.811/US$ Differential in exchange rate from previous level of 1st march 2010 is mainly due to federal policy , interest rate changes,high level of inflow , differential in Inflation rate between two countries , and export import gap between the countries

jeff jeffy answered 1 year ago
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