Economics Exchange Rate Systems Questions
Several factors influence exchange rates, including interest rates, inflation rates, political stability, economic performance, government intervention, and market speculation. Changes in any of these factors can cause fluctuations in exchange rates. For example, higher interest rates in a country can attract foreign investors, increasing the demand for its currency and strengthening its exchange rate. Similarly, political instability or poor economic performance can lead to a decrease in demand for a country's currency, causing its exchange rate to weaken. Government intervention, such as central bank interventions or currency pegs, can also impact exchange rates. Additionally, market speculation and investor sentiment can play a significant role in short-term exchange rate movements.