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If a country raises its interest rates, its currency prices will strengthen because the higher interest rates attract more foreign investors. This answer sounds exactly logical as I think about it, yet, in economics books, under the uncovered interest rate parity model, a country with a higher interest rate should expect its currency to depreciate. I would agree with this proposition in the long run an expensive currency will hurt exports... but in the very short run... let's say once the CB declaires a rise in interest rate, by how much should one expect the currency to appreciate? is there any formula for this?
What else can I help you with?
How might a rise in local currency affect a country's interest rates?
It may also encourage a decrease in the interest rates in the country if the central bank of that country wants to maintain the currency exchange rate and a decrease in the interest rate would spur local investment.
How does productivity in a country affect equilibrium currency prices?
If one country's productivity increased relative to another's, the former country would become more competitive in world markets. The demand for its exports would increase, and so would the demand for its currency.
How does a country balance of payments affect the value of its currency?
can cause fluctuations in the exchange rate between its currency and foreign currencies.
How does political and economic stability in a country affect equilibrium currency prices?
If the United States looked economically and politically more stable than other countries, more foreigners would want to put their savings into U.S. assets than in assets of another country. This would increase the demand for dollars.
What are the effect of dollarization in developing country?
since dollarization replaces country's currency, it will lead to depreciation of local currency. Investors wont find it worth investing in a country with falling local currency as it will fetch them no good return. Also, it will affect our export. Import would be expensive.
How might a rise in local currency affect a country's interest rates?
It may also encourage a decrease in the interest rates in the country if the central bank of that country wants to maintain the currency exchange rate and a decrease in the interest rate would spur local investment.
How relatively high interest rates affect currency values?
What is important is not high interest rates but high real interest rates: that is, interest rates adjusted for inflation.If a currency has high real interest rates, foreign investors will want to buy into that currency. The increased demand will push up the price of that currency relative to other currencies and so its exchange rate will "improve".
Why immigration affect equilibrium?
why does immigration and emigration affect equilibrium
How does productivity in a country affect equilibrium currency prices?
If one country's productivity increased relative to another's, the former country would become more competitive in world markets. The demand for its exports would increase, and so would the demand for its currency.
How does a country balance of payments affect the value of its currency?
can cause fluctuations in the exchange rate between its currency and foreign currencies.
How does political and economic stability in a country affect equilibrium currency prices?
If the United States looked economically and politically more stable than other countries, more foreigners would want to put their savings into U.S. assets than in assets of another country. This would increase the demand for dollars.
What are the effect of dollarization in developing country?
since dollarization replaces country's currency, it will lead to depreciation of local currency. Investors wont find it worth investing in a country with falling local currency as it will fetch them no good return. Also, it will affect our export. Import would be expensive.
How do enzymes affect the equilibrium constant of a reaction?
Enzymes do not affect the equilibrium constant of a reaction. They only speed up the rate at which the reaction reaches equilibrium, but do not change the position of the equilibrium itself.
How does a country's currency affect tourism?
A country's currency which has declined, makes it less expensive for tourists to travel there. That said, for example, if Spain's currency has been devalued in comparison to a tourist who lives in the USA, there is a better chance of tourists visiting Spain. Tourist dollars help the country to attract tourists.
How does the exchange rate affect Britain?
Exchange rate is depends on the rate of that country currency rates and gold!
What are the factors that influence the health equilibrium?
the factors that affect the health equilibrium is the
What are interest rate differentials, and how do they affect currency pairs?
Interest rate differentials refer to the difference in interest rates set by central banks between two currencies in a currency pair. When one currency has a higher interest rate than the other, investors are more likely to invest in assets denominated in the higher-yielding currency to benefit from the better returns. This drives demand for that currency, causing its value to rise relative to the lower-yielding currency. For example, if the U.S. Federal Reserve raises interest rates while the European Central Bank keeps them steady, the U.S. dollar may strengthen against the euro due to the interest rate differential. Interest rate differentials play a crucial role in forex markets, as they influence investor sentiment and capital flows, making them a key driver of currency pair movements.
