Long-run Determinants of Exchange Rates - Essay Example

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Long-run Determinants of Exchange Rates

There are several factors that are responsible in determining exchange rate in any country. Exchange rates show the value of a country's currency through which it can buy other country's currencies. Every country needs stable foreign exchange rate to trade freely. Exchange rate may get affected through various things. There are two regimes with respect to exchange rate which can either be fixed or flexible. In fixed exchange rate regimes, the currency rates do not move freely. However, in flexible exchange rate system, the currency rates are affected by a number of variables prevailing in an economy. The macroeconomic factors that affect exchange rates are variable by nature and thus play a great role in determining exchange rates. Governments and Central Banks especially utilize these macroeconomic factors to maintain a desired level of exchange rate in the economy. These macroeconomic factors may lead to great fluctuations in exchange rates both in short and long run. ...
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Summary

This paper attempts to evaluate and analyse the various factors that determine exchange rates in the long run. This paper aims to identify and evaluate the long-run determinants of exchange rates with the help of available literature.
The various determinants of exchange rates and factors causing fluctuations in currency rates have been evaluated with the help of secondary data sources…
Author : jhalvorson

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