Question

Explain two causes of an increase in the value of a countrys floating foreign exchange rate

Answer 1

Inflation differentials and interest rates are two causes of an increase in a country's floating foreign exchange rate.

Step-by-step explanation:

Causes of an Increase in a Country's Floating Foreign Exchange Rate:

1. Inflation Differentials: When a country has a higher inflation rate compared to its trading partners, the value of its currency tends to decrease. This is because higher inflation erodes the purchasing power of the currency, making it less desirable.
2. Interest Rates: Higher interest rates in a country can attract foreign investors looking for better returns. This increased demand for the currency drives up its value in the foreign exchange market.

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