Please help fast Which of the following factors is most important indetermining short-run foreign exchange rates ?A. relative inflation ratesB. relative interest ratesO C. relative population growth ratesD. none of the above

Exchange rates are the rates at which one currency is exchange with the other for the purpose of…

Answered: Which of the following factors is most…

Which of the following factors is most important determining short-run foreign exchange rates ? O A. relative inflation rates O B. relative interest rates

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter21: International Finance

Section: Chapter Questions

Problem 3QP

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

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Please help fast

Which of the following factors is most important in
determining short-run foreign exchange rates ?
A. relative inflation rates
B. relative interest rates
O C. relative population growth rates
D. none of the above

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