Economics Exchange Rates Questions
Exchange rates play a crucial role in international debt markets as they determine the value of one currency in relation to another. Fluctuations in exchange rates can significantly impact the cost of borrowing and repayment obligations for countries that have borrowed in foreign currencies. A depreciation in the domestic currency can increase the burden of debt repayment, making it more expensive for countries to service their debts. On the other hand, an appreciation in the domestic currency can reduce the debt burden. Exchange rates also influence investor sentiment and confidence in a country's ability to repay its debts, affecting the demand for its bonds and overall borrowing costs.