The relationship between a country's relative inflation rates and changes in exchange rates is:

Question

Quizplus · Accepted Answer

In the short run, the relationship between a country's relative inflation rates and changes in exchange rates is not reliable. Short-term factors such as speculation, political events, and changes in interest rates can influence exchange rates more significantly than inflation rates. However, in the long run, the relationship between inflation rates and exchange rates becomes more reliable as inflation affects a country's trade balance and competitiveness, which ultimately impacts its currency's value.

The Relationship Between a Country's Relative Inflation Rates and Changes