International Money and Capital Markets Research Paper

International Money and Capital Markets - Research root word ExampleA developed economy is defined by high take aim of economic activities including exotic trade resulting to high demand of foreign coin, especially hard currencies such as US dollar. A higher demand of foreign currency induces increase in exchange rate and the other delegacy round (Taylor, 2001).Exchange rate shares an logical implicationant relationship to relative price level because price level establishes a link between foreign price and domestic price. Relative price difference or purchasing power parity is an important determinant of exchange rate as it recognizes various adjustments that command to be made in the exchange rate for maintaining equaliser in the international currency judge (Auboin and Ruta, 2013).Trade flow can be categorized as trade inflow (import) and trade fountain (export). When the cost of foreign currency is relatively high, countries focus on greater export and less import while low exchange rate result in increasing level of import. However, frequent sport in the exchange rate has negative impact on trade flow because of fluctuation in transaction and conversion costs (Auboin and Ruta, 2013).Interest rate is an influential factor with respect to fluctuation in exchange rate. Studies suggest that higher interest rate result in appreciation in the currency value of a country with respect to that of other because, high interest rate attracts greater enthronement in the appreciating currency for earning better future returns (Taylor, 2001).Impact of economic factors on exchange rate equilibriumAssessment of exchange rate behavior is a perennial subject of international monetary economics where various macroeconomic factors are examined to understand their role in maintaining equilibrium in exchange rate.