Interest rates and expected inflation in one country compared to another country seldom affect exchange rates between the two countries.

Question

Quizplus · Accepted Answer

Interest rates and expected inflation are important factors that can affect exchange rates between two countries. When a country has higher interest rates or expected inflation compared to another country, its currency tends to appreciate against the other country's currency as investors seek higher returns. This can lead to changes in exchange rates between the two countries.

Interest Rates and Expected Inflation in One Country Compared to Another