Economics Exchange Rate Systems Questions
The impact of exchange rate changes on foreign direct investment (FDI) inflows can vary depending on the specific circumstances. In general, a depreciation of the domestic currency can make a country's assets and goods cheaper for foreign investors, potentially attracting more FDI inflows. This is because foreign investors can acquire more assets or goods for the same amount of their own currency. On the other hand, an appreciation of the domestic currency can make a country's assets and goods more expensive for foreign investors, potentially reducing FDI inflows. However, it is important to note that exchange rate changes are just one of many factors that influence FDI inflows, and other factors such as political stability, market size, and investment climate also play significant roles.