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Strategies & Market Trends : Market Direction Predictions and BS guesses
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To: Vitalsigns who wrote (140)6/4/2000 10:21:00 PM
From: New Economy  Read Replies (2) of 234
 
If I may make some comments on Economic Theory with respect to interest rates and exchange rate movements.
Countries with rising interest rates will see their currency depreciate relative to countries with lower rates.
The International Fisher Equation quantified this relationship:
Nominal Rates in Home country / Nominal rates in Foriegn Country and then multiply by the spot exchange.
Anyway, over the short run when a country raises interest rates...you see the currency appreciate because investors buy up the bonds of that country.
However, most Economist suggest that over the long-term the currency depreciates.
If you look at the $US in the past few quarters, it has been appreciating significantly due to low inflation rate.
This is another theory: Countries with low inflation see their currency appreciate relative to others.
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