Two of the most often used determinants of exchange rates are ________.

Question

Quizplus · Accepted Answer

Real interest rate differentials and current account balances are two of the most often used determinants of exchange rates. Real interest rate differentials measure the difference between the interest rates in two countries adjusted for inflation, while current account balances measure the net flow of goods, services, and capital between two countries. Both factors can have a significant impact on the demand for and supply of currencies, thus affecting their exchange rates. Nominal interest rates and inflation rate differentials can also affect exchange rates, but they are not as widely used as real interest rates and current account balances.

Two of the Most Often Used Determinants of Exchange Rates