How Exchange rates, Inflation Impacts on Real Economy of a Country

[Christian Holm]

An exchange rate is the rate at which one currency is exchange for a foreign currency. Exchange rates are stated in pairs of currencies between two nations. A domestic currency is said to appreciate against a foreign currency when one unit of domestic currency buys more units of a foreign currency. Likewise, a domestic currency is said to depreciate against a foreign currency if one unit of domestic currency buys few units of a foreign currency. Here we are defining these main points in our International Finance assignment writing assistance so that students get the complete idea about these main facts.

Facts that Matter

• Exports and imports: A country's trade balance is the difference between a country's exports and its imports. Countries with globalization trade surpluses tend to have stronger currencies while countries with large trade deficits tend to have weaker currencies. You can get the entire information and points directly through our Finance Dissertation Assistance Services according to your requirements.
• Capital Flows: Capital flows are inflows or outflows of funds from a country for the purposes of investment in financial assets, real estate or business enterprises. If capital inflows exceed capital outflows from a country, the country will register a capital account surplus. If capital outflows exceed capital inflows, the country will register a capital account deficit which is negative for its currency. Countries with sustained capital account and trade surplus will build up reserves of foreign currency over time.
• Interest Rates: A country's currency is also affected by changes in domestic interest rates vis-à-vis offshore interest rates. If domestic interest rates rise in comparison to offshore interest rates, this will lead to an increase in fund inflows from abroad to capitalize on potentially higher rates return on fixed income instruments, leading to stronger domestic currency. If offshore interest rates rise in comparison to domestic interest rates, this will lead to an increase fund outflows to capitalize on potentially higher rates of return on foreign fixed income instruments, resulting in a weaker domestic currency. We have best team of finance homework writing help service students so that they can easily submit these assignments before the deadline and score the best marks.
• Inflation Rate: A relatively higher domestic inflation rate compared to other countries will dampen the purchasing power of the domestic currency as prices of local goods and services upsurge at a quicker rate than foreign things. A relatively lower domestic inflation rate compared to other countries will strengthen the purchasing power of the currency.
• Sovereign Debt level: The level of a country's exchange rate also depends on its financial position. A large and rising sovereign debt level relative to the country's economic base as measured by its Gross Domestic Product (GDP) may be a cause for concern to foreign depositors. Thus, countries that manage their debt levels well and which enjoy stronger financial position are likely to experience relatively stronger and more stable currencies.

Conclusion

It is important to have an understanding of the factors which affect exchange rates as returns on foreign investments can be impacted by currency movements. An appreciation in the exchange rate of a foreign currency against the local currency will lead to higher investment returns when we convert the foreign investment back into local currency. Similarly, a depreciation in the exchange rate of a foreign currency against the local currency will lead to lower investment returns when we convert the foreign investments back into the local currency.

Place Your Order Right Away

We ensure that only high-quality work is delivered from our side at pocket-friendly prices as fast as we can. The whole team of International finance assignment help is strongly focused on preparing the documents from scratch. Our round-the-clock assistance is the further add-on from us.