Economics Exchange Rates Questions
Exchange rates play a crucial role in international capital flows as they determine the value of one currency in relation to another. Fluctuations in exchange rates can impact the attractiveness of investing in a particular country. A stronger currency makes imports cheaper and exports more expensive, which can lead to a decrease in capital inflows and an increase in capital outflows. Conversely, a weaker currency can make exports cheaper and imports more expensive, attracting foreign investment and increasing capital inflows. Exchange rates also affect the profitability of international investments and can influence the decision-making process of investors.