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What is Exchange Rate Theories Explained about?
The document discusses several theories related to cross rates and exchange rate determination: 1. Inflation rate differentials between countries influence exchange rates as higher domestic inflation raises import prices and lowers export competitiveness, depreciating the domestic currency. 2. Interest rate differentials also impact exchange rates through covered interest rate arbitrage and the expectation that currencies with higher interest rates will appreciate. 3. Several theories have limitations
- Author
- priya n
- Language
- EN