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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 do interest rates affect the international trade?
Interest rates influence international trade by impacting currency values and borrowing costs. When a country's interest rates rise, its currency often strengthens due to higher returns on investments, making its exports more expensive and imports cheaper. Conversely, lower interest rates can weaken the currency, boosting exports by making them more competitively priced abroad while increasing the cost of imports. Overall, changes in interest rates can affect trade balances and the flow of goods and services between countries.
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.
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 do interest rates affect the international trade?
Interest rates influence international trade by impacting currency values and borrowing costs. When a country's interest rates rise, its currency often strengthens due to higher returns on investments, making its exports more expensive and imports cheaper. Conversely, lower interest rates can weaken the currency, boosting exports by making them more competitively priced abroad while increasing the cost of imports. Overall, changes in interest rates can affect trade balances and the flow of goods and services between countries.
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!
How do interest rate decisions affect forex trading?
Interest rate decisions are one of the most influential factors in forex trading, as they directly affect a currency's value. When a central bank raises interest rates, it typically strengthens the currency because higher rates offer better returns on investments in that currency, attracting foreign capital. Conversely, when interest rates are lowered, it can weaken the currency, as investors seek higher returns elsewhere. Forex traders closely monitor these decisions, as even the anticipation of a rate change can cause significant fluctuations in exchange rates. Additionally, interest rate differentials between countries can drive currency flows, with traders favoring currencies from nations with higher rates, impacting supply and demand in the forex market.
