What affects can inflation in America, interest rates in the U. S. and other factors have upon the dollar' ER

Question

In the world of international trade, currencies are one of the items exchanged, depending upon their value. Discuss the factors which affect rates of currency exchange and the dollar*s value against other currencies. What affects can inflation in America, interest rates in the U. S. and other factors have upon the dollar*s exchange rate? What can the U. S. Government do if it wanted to control the fluctuations in the exchange rate of the dollar?

Answer 1

The price of any good must adjust to make supply and demand equal. In the same way, the exchange rate must adjust to make the supply and demand for currencies equal.

There are a couple of theories that predict relationships between the exchange rate and other variables:

1. Purchasing power parity
2. Uncovered interest parity.

Look them up and they will give you some guidance to your questions.

Answer 2

Sorry, I'm Not allowed to do your homework, because you wouldn't learn anything, and you would graduate knowing nothing and screw up the world