Suppose two countries,A and B,are trading with each other.Suppose also that the rate of inflation in B is higher than in A.There will be

Question

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When the rate of inflation in Country B is higher than in Country A, it generally makes Country B's goods more expensive relative to Country A's goods. This tends to decrease the demand for Country B's exports and increase its imports, as Country A's goods become relatively cheaper. Consequently, there will be more of Country B's currency available in the foreign exchange market as it buys more from Country A, leading to an increase in the supply of Country B's currency.

Suppose Two Countries,A and B,are Trading with Each Other