The Determinants of Exchange Rates in a Floating Exchange Rate System

To understand how a country's currency might appreciate or depreciate, you must understand the variable that can affect demand or supply for the currency on the forex market. This lesson will introduce a useful acronym (TIPSY) for remembering the determinants of exchange rates, and evaluate the advantages and disadvantages of floating exchange rate systems.
Want to learn more about economics, or just be ready for an upcoming quiz, test or end of year exam? Jason Welker is available for tutoring, IB internal assessment and extended essay support, and other services to support economics students and teachers. Learn more here! econclassroom.com/?page_id=5870

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[@mayapotato8497]

For the determinants there are a couple missing, at least from my ib economics study guide that the school provided: 1.Worker Remittances 2.Central Bank Intervention BUt thank you for the acronym and the video, it was very useful

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[@grgn7786]

I don't get it. If a country has high interest rates that most probably means that their central bank tries to fight the inflation. If high interest rates mean that the currency appreciates and high inflation means that the currency depreciates, how do we define what happens to their currency? Do we compare then the inflation rate and the interest rate and calculate the real interest rate? Can somebody please give an answer?

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[@andrewjason3756]

Can anyone tell me the effects on fixed exchange rate as a result of rising interest rates. i assume it this way - A rise in interest rate causes hot money inflows, as a result of this currency value appreciates. Therefore exports becomes expensive to foreigner's and imports become cheaper. As a result of this export competitiveness fall as as the countries is using a fixed exchange rate, it ends up paying more for it's import's. Is this all or can i add some more to it.

[@fasihz]

A fixed exchanged rate is pegged by definition, hence it won't change due to rising interest rates if the government doesn't want it to.

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8:10 then how do you explain Black Wednesday in 1992 where UK did have an overvalued fixed exchange rate which cost them billions due to market speculators i.e George soros ?

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[@coby1kenobii]

tipsy