Exchange Rate Theory

Exchange Rate Theory explains how the value of one currency relates to another, influencing international trade and investment. Various factors affect exchange rates, including economic indicators (like inflation and interest rates), political stability, and market speculation. A stronger currency can make exports more expensive and imports cheaper, while a weaker currency can boost exports and raise import costs. Supply and demand in the foreign exchange market ultimately determine exchange rates, highlighting the dynamic nature of currency valuations as economies and global events fluctuate.