Exchange rates and the Foreign Exchange Market: An Asset Approach - Interest Rates, Expectations, and Equilibrium - The Effect of Changing Interest Rates on the Current Exchange Rate
3 important questions on Exchange rates and the Foreign Exchange Market: An Asset Approach - Interest Rates, Expectations, and Equilibrium - The Effect of Changing Interest Rates on the Current Exchange Rate
The effect of a rise in the dollar interest rate
The dollars appreciation today raises the expected dollar return on euro deposits, by increasing the rate at which the dollar is expected to depreciate in the future. (when it moves downwards (among the curve)there is a appreciation)
The effect of a rise in the euro interest rate
Causes the dollar to depreciate (it is shifting upwards among the curve). They will expect a rise in the exchange rate.
An increase in interest paid leads to..
An increase in the interest paid on deposits of a currency causes to appreciate against foreign currencies
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