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This will make the currency appreciate because there are more local currency than foreign currency especially if there is no trade surplus. It will now take more local currency to buy the same amount of foreign money making foreign exchange rate to appreciate. Inflation meant that it now takes more money to buy certain goods and services. It also meant more money circulating in a given economy. Being such, it will take more money to buy same amount of foreign currency making the exchange rate to appreciate.

Tax breaks given to business to encourage capital expenditures meant businesses will be buying more equipment. If the equipment is bought locally, foreign exchange will depreciate because there will be less need for it. If such equipment will be bought abroad through imports, then foreign exchange rate will appreciate. Good stock market performance will encourage more investment and more demand for the local currency. This will make the foreign exchange rate to depreciate while the dollar to appreciate.

This is because foreign money would need more dollars to be able to invest in the stock market. Government intervention in the capital market will make foreign exchange rate to appreciate and the dollar to depreciate. This is typically done to make the imports competitive by making it cheaper. To make this happen, central banks will put more dollars in the system to depreciate the dollar. Monetary growth or the strengthening of economy through high exports will make the local currency to appreciate.

It is because there are more foreign money coming in through trade. It has the effect of converting local currency into greater value through export or trade. Increase in GNP and real economic growth will make the local currency stronger. It will be able to buy more goods. It will have the effect of depreciating foreign exchange rate because of its stronger purchasing power. Forward premiums is a situation of trading