ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Currency exchange rates can impact merchandise trade, economic growth, capital flows, inflation and interest rates.

Detailed explanation-2: -When exchange rates change, the prices of imported goods will change in value, including domestic products that rely on imported parts and raw materials. Exchange rates also impact investment performance, interest rates, and inflation-and can even extend to influence the job market and real estate sector.

Detailed explanation-3: -Interest rates, money supply, and financial stability all affect currency exchange rates. Because of these factors, the demand for a country’s currency depends on what is happening in that country.

Detailed explanation-4: -This paper focuses on an accounting framework that is useful for distinguishing between the effects on exchange rates of four separate factors: relative price levels, balances of payments, interest rates and risk.

Detailed explanation-5: -Inflation, interest rates, and forex rates are correlated. Each of these factors can affect the other two. Low inflation and high-interest rates can attract foreign funds to a country, strengthening its exchange rate.