The paper "What Factors That Influence Exchange Rates and How? " is a perfect example of an outline on macro and microeconomics. The health of the economy is determined by a country’ s exchange rates. However, exchange rates are widely influenced by different factors. Surprisingly, the rates vary from country to country and for any given currency, over time. A. Thesis statement Demand and supply, meaningfully, are the key determiners of the exchange rate. The great demand for goods tends to call for the increased value of the currency. 2. BODYI) Factors That Influence Exchange RatesA.
InflationChanges in market demand cause a change in currency exchange rates. A country that experiences low inflation rates often enables an appreciation in the value of its currency (Compare Remit, 2015). Where inflation is low, the prices of goods and services increase at a slower rate. For instance, if the inflation is low in the US, its export will be competitive thus increase in demand. In this case, their imports will be less competitive hence little demand for imports. B. Interest ratesChanges in interest rates influence currency value. The increased rate affects a country’ s currency.
Higher interests invite higher rates to lenders thus attracting more foreign capital (World’ s Leading Macroeconomic Survey Firm, 2015). For instance, if US interest rates rise relative to elsewhere, it will attract more investors to deposit in US banks. The value of the dollar will increase. C. SpeculationHere, speculators make the substantial thought that there would raise in the currency in the future (CompareRemit, 2015). Therefore, there would be more demand now to make more profit. This increase in demand will cause the value to rise.
D. Government InterventionChina is one of the countries that undervalue its currency to make Chinese products more competitive (Economics. Help, 2013). Usually, they do this by buying US dollar assets hence increases the value of the Dollar to Yuan.