Factors That Determine a Currency's Value
FIN341- Multinational Financial Management
“What determines a currency’s value?”
Number of words: 3.239
Table of Content
Table of Figures II
List of Abbreviations III
1 Introduction - 1 -
2 Factors that determine a currency’s value - 1 -
2.1 Inflation - 1 -
2.2 Interests rates - 3 -
2.3 Trade and Investment - 4 -
2.4 Economy - 6 -
2.4.1 Economic indicators - 6 -
2.4.1 Economy and Economic Theory - 7 -
2.4.2 Industry - 7 -
2.5 Government policy - 8 -
2.6 Other factors influencing a currency’s value - 9 -
3 Conclusion - 11 -
Reference List - 12 -
Table of Figures
Figure 1: US Trade Deficit (%GDP) 5
List of Abbreviations
CPI Consumer Price Index
GDP Gross Domestic Product
IFE International Fisher Effect
PPP Purchasing Power Parity
Introduction
Increasing exchange rate fluctuations, such as those that have occurred in the US dollar, have recently revived the discussion about the causes of such movements and the criteria for calculating the long-term over- or undervaluation of a currency. Currency can be defined as any form of money that is in public circulation. Currency includes both coins and soft money paper money. Typically currencies are used as a medium of exchange for goods and services. The exchange rate indicates the price of a currency and plays therefore an important role.[1] Also when investing or purchasing in a foreign currency, it is important to understand the factors that determine a currency’s value. Investors are often exposed to different currencies, companies have overseas earnings, and many funds invest abroad. Exchange rate movements will therefore impact the returns of a business.[2] In the following this paper examines several factors that influence a currency’s value.
Factors that determine a currency’s value
1 Inflation
The first aspect that
“What determines a currency’s value?”
Number of words: 3.239
Table of Content
Table of Figures II
List of Abbreviations III
1 Introduction - 1 -
2 Factors that determine a currency’s value - 1 -
2.1 Inflation - 1 -
2.2 Interests rates - 3 -
2.3 Trade and Investment - 4 -
2.4 Economy - 6 -
2.4.1 Economic indicators - 6 -
2.4.1 Economy and Economic Theory - 7 -
2.4.2 Industry - 7 -
2.5 Government policy - 8 -
2.6 Other factors influencing a currency’s value - 9 -
3 Conclusion - 11 -
Reference List - 12 -
Table of Figures
Figure 1: US Trade Deficit (%GDP) 5
List of Abbreviations
CPI Consumer Price Index
GDP Gross Domestic Product
IFE International Fisher Effect
PPP Purchasing Power Parity
Introduction
Increasing exchange rate fluctuations, such as those that have occurred in the US dollar, have recently revived the discussion about the causes of such movements and the criteria for calculating the long-term over- or undervaluation of a currency. Currency can be defined as any form of money that is in public circulation. Currency includes both coins and soft money paper money. Typically currencies are used as a medium of exchange for goods and services. The exchange rate indicates the price of a currency and plays therefore an important role.[1] Also when investing or purchasing in a foreign currency, it is important to understand the factors that determine a currency’s value. Investors are often exposed to different currencies, companies have overseas earnings, and many funds invest abroad. Exchange rate movements will therefore impact the returns of a business.[2] In the following this paper examines several factors that influence a currency’s value.
Factors that determine a currency’s value
1 Inflation
The first aspect that