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What is Exchange Rate Determination Methods about?
Short-term exchange rates are difficult to predict and influenced by trends, sentiment, and order flows. Long-term determinants include purchasing power parity, interest rates, investment levels, and terms of trade. Medium-term tools for forecasting examine covered interest parity, uncovered interest parity, and the Fisher effect, which states that the nominal interest rate equals the real interest rate plus expected inflation. Forward rates also aim to predict future spot rates.
- Author
- Saurabh Bihani
- Language
- EN