Analyze the major effects that relative interest and inflation rates could have on a country’s currency. Suggest the crucial steps that a company could take in order to minimize the adverse effects of currency fluctuations.
Inflation and relative interest rates can have major effect in a country’s currency and also on the foreign exchange of other nation’s currencies. Inflation and interest rate go hand and hand.
Higher interest rate can attract direct foreign investment and increases de currency demand for that nation but it also negatively affect that country’s currency by driving prices up and therefore stimulate higher interest rates which can discourages consumer purchase power within the nation, increase imports, and decrease exports.
On the other hand, lower interest rates can spur consumer spending but will discourage foreign investment.
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