The Value Of A Country 's Currency

734 WordsDec 8, 20163 Pages
In the world, every country has its own level of production and consumption of goods and services called the economy. The economic activities allow each country to have its currency valued against other currencies and this is called exchange rate. When you borrow money, there is a charge that you pay in return on top of the borrowed amount called interest. Interest is usually calculated as per annum and it influences exchange rates. The value of a country’s currency is affected by a cocktail of activities such as political stability, productivity, inflation and many other things. Holding all other things constant, if a country’s interest rate change, this will affect its exchange rates, for example if the interest rates of the United States dollar (US$) rises more than the British Pound, the US$ will become more powerful compared to the British pound. In theory, if interest rates of a country increase, the money of that country will become more valuable, but as I said above, many other things also influence the exchange rates meaning that interest rate alone will not be good enough to determine the exchange rate of a currency. The demand for goods produced by a country has a major impact too on the performance of the country’s currency. Counties whose goods are on high demand on an international market can increase their interest rate too to make their currency hold high value. The more valuable a currency is, the more it becomes on demand internationally. Because USA has a
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