Conversion currency

Posted by Winnie Melda on March 8th, 2019

There are various factors that lead to weakening of a country’s currency.

Trade deficit

Trade deficit arises when the value of a country’s exports is exceeded by the value of its imports. As a result, the value of currency weakens.

Capital outflow

Investing significantly large amount of money in other countries may results in huge capital outflows (Aghion et al., 2001). This may be done through treasuries or other instruments. One of the negative impacts of this practice is a weak currency.

 Interest rates

A country’s interest rates determine the strength of its currency.  Lower interest rates may cause a large outflow of capital to other countries with high rates (Betts& Devereux, 2000). This weakens the country’s currency.

 Restrictions on capital flow

            If more restrictions on capital flow are imposed, currency weakens in the medium term.

 References

Aghion, P., Bacchetta, P., & Banerjee, A. (2001). Currency crises and monetary policy in an economy with credit constraints. European economic review, 45(7), 1121-1150.

Betts, C., & Devereux, M. B. (2000). Exchange rate dynamics in a model of pricing-to-market. Journal of international Economics, 50(1), 215-244.

 Carolyn Morgan is the author of this paper. A senior editor at MeldaResearch.Com in research paper writing services if you need a similar paper you can place your order from Top American Writing Services.