The relationship between interest rate and exchange rate

summa

summa

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Dear Friends,

Pls share your knowledge.

1. What is the relationship between interest rate and exchange rate?
2. How it affect on share prices?

Antonym

Antonym

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Exchange rate is the price of one currency measured in terms of another. When currencies are free floating, price is determined by demand and supply.

High interest rate can increase demand for a currency, increasing its value. Expectations of a stronger LKR in future can draw funds into the country and vice versa.

More information -
http://www.investopedia.com/articles/basics/04/050704.asp#axzz1rFxqilC3

Rajaraam

Rajaraam

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Antonym wrote:Exchange rate is the price of one currency measured in terms of another. When currencies are free floating, price is determined by demand and supply.

High interest rate can increase demand for a currency, increasing its value. Expectations of a stronger LKR in future can draw funds into the country and vice versa.

More information -
http://www.investopedia.com/articles/basics/04/050704.asp#axzz1rFxqilC3

Dear Antonym,I read that. But I cant just agree with this point coz;

High interest rates means more demand for credit.It can be mainly from government or from investors or mainly from consumers.If government, again we have questions. Govt. is borrowing for what? More for investment or more for consumption? If demand is from investors that is good country's investment would increase thus GDP also goes up increasing per capita income. If the demand of the credit has gone up mainly due to consumers requirements then it is not helthy.

Therefore we cant predict rising of currency value only on this fact.

sriranga

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The relationship between interest rate and exchange rate

1 The relationship between interest rate and exchange rate Wed Apr 04, 2012 9:08 pm

summa

2 Re: The relationship between interest rate and exchange rate Fri Apr 06, 2012 6:25 pm

Antonym

3 Re: The relationship between interest rate and exchange rate Fri Apr 06, 2012 10:01 pm

Rajaraam

4 Re: The relationship between interest rate and exchange rate Fri Apr 06, 2012 10:27 pm

sriranga

5 Re: The relationship between interest rate and exchange rate

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