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Sir
Interest rate and exchange rate>> when a countries interest rate rises demand for the currency rises so exchange rate depreciates and vice versa.
inflation rate and exchange rate >>when a countries inflation rate increases demand for the currency decreases and exchange rate increases .
is this okay sir??
John,
In the exam is it made clear which currency the examiner is asking about? As if one currency appreciates, the other in the pair depreciates.
so in the following… X
UK increases rates, therefore demand for £ rises, so buying £1 becomes more expensive.
So where before it used to cost $0.50 to buy £1 it would now cost say $0.75
Therefore the £ appreciates against the $
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