What factors affect currency exchange rates?

Here are some of the top factors that can affect an exchange rate: 1. Inflation Rates Changes in market inflation cause changes in currency exchange rates. A country with a lower inflation rate than another's will see an appreciation in the value of its currency. The prices of goods and services increase at a slower rate where the inflation is low.

How do exchange rates affect international trade?

Exchange rates significantly influence international trade by affecting the relative prices of goods and services between countries. When a country’s currency appreciates, its exports become more expensive for foreign buyers, potentially reducing demand.

How do interest rates affect exchange rates?

Interest rates are a powerful tool for influencing exchange rates, as they directly affect the return on investments denominated in a particular currency. Higher interest rates tend to attract foreign capital, leading to an appreciation of the currency.