Global business investment - Coursework Example

Download file to see previous pages Because of this reason, exchange rates analyzed, watched and manipulated economic measures by the government.
Exchange rates are also useful when examined on a smaller scale: they influence the real return of the portfolio of an investor. There are several factors that affect exchange rates. Before we examine these factors, it is important to look at how exchange rate affects the trading relationships between countries. A lower currency is considered to make exports of a country cheaper and imports expensive in the foreign markets. A higher currency is considered to make exports of a country expensive and imports cheaper in the foreign markets. Hence, a lower rate of exchange will increase the balance of trade of a country while a higher rate of exchange is expected to lower it.
There are several factors that have influence on exchange rates, and they are associated with the trading relationship between countries on a global level known as internationalization or globalization (Hill 2012). It is significant to understand that exchange rates are expressed as a comparison of two currencies from two countries. It is also significant to understand that these factors cannot be discussed in a specific order; similar to numerous aspects of economics, the significance of these factors is usually subjected to discussion. The following are discussed determinants that influence exchange rate between countries.
Exchange rates, interest rates, and inflation are all highly correlated. Central banks in manipulating interest rates can exert influence on both exchange rates and inflation, and altering interest rates influence currency and inflation values. Interest rates that are high offer lenders high return in an economy relative to other countries. For this reason, interest rates that are high attract a huge amount of foreign capital and result in a rise in the exchange rate. For instance, if the United Kingdom rates rise in relation to elsewhere, it becomes ...Download file to see next pagesRead More