Outline the determinants of exchange rate in the long run

      


Outline the determinants of exchange rate in the long run

  

Answers


Simon

• Trade barriers. When the trade barriers in a country are increased, the country’s currency appreciate in the long run.
• Relative price levels. A rise in a country’s price level causes its currency to depreciate and a fall in the country’s relative price level causes its currency to appreciate.
• Productivity. If a country becomes more productive than other countries, businesses in that country can lower the prices of domestic goods relative to foreign goods and still earn it.
• Preferences for domestic versus foreign goods. Increase in demand for a country exports causes its currency to appreciate in the long run and an increase in demand for imports causes the domestic currency to depreciate.

skilled writter answered the question on May 1, 2018 at 16:24


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