Interest, Inflation and Exchange Rates

High levels of inflation within a country are typically associated with the weakening of the value of that country’s currency against that of its trading partners. This is because any money invested in the currency is likely to lose value as interest levels cause the currency to depreciate. This lack of investment interest can cause exchange rates to drop. However, high levels of interest are often accompanied by high interest rates as well, which have the opposite effect – typically causing exchange rates to rise!

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