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Sri Lanka Equity Forum » Stock Market Talk » The relationship between interest rate and exchange rate

The relationship between interest rate and exchange rate

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summa


Senior Equity Analytic
Senior Equity Analytic
Dear Friends,

Pls share your knowledge.

1. What is the relationship between interest rate and exchange rate?
2. How it affect on share prices?

Antonym

Antonym
Vice President - Equity Analytics
Vice President - Equity Analytics
Exchange rate is the price of one currency measured in terms of another. When currencies are free floating, price is determined by demand and supply.

High interest rate can increase demand for a currency, increasing its value. Expectations of a stronger LKR in future can draw funds into the country and vice versa.

More information -
http://www.investopedia.com/articles/basics/04/050704.asp#axzz1rFxqilC3

Rajaraam


Vice President - Equity Analytics
Vice President - Equity Analytics
@Antonym wrote:Exchange rate is the price of one currency measured in terms of another. When currencies are free floating, price is determined by demand and supply.

High interest rate can increase demand for a currency, increasing its value. Expectations of a stronger LKR in future can draw funds into the country and vice versa.

More information -
http://www.investopedia.com/articles/basics/04/050704.asp#axzz1rFxqilC3
Dear Antonym,I read that. But I cant just agree with this point coz;

High interest rates means more demand for credit.It can be mainly from government or from investors or mainly from consumers.If government, again we have questions. Govt. is borrowing for what? More for investment or more for consumption? If demand is from investors that is good country's investment would increase thus GDP also goes up increasing per capita income. If the demand of the credit has gone up mainly due to consumers requirements then it is not helthy.

Therefore we cant predict rising of currency value only on this fact.

sriranga

sriranga
Co-Admin
The relationship between interest rate and exchange rate Captur24

http://sharemarket-srilanka.blogspot.co.uk/

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