| Science Forum Index » Economy Forum » Effect of inflation on exchange rate |
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| shaun |
 Posted: Mon Oct 03, 2005 12:51 am |
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Can someone tell me what will happen to the exchange rate of a
country's currency if its inflation rises or falls? In simple terms,
can you tell me the step-by-step logical reasoning of whether it will
appreciate or depreciate..
Thanks a lot for the help,
~Shaun |
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| Brablo |
| Posted: Mon Oct 03, 2005 11:45 am |
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If memory serves me correct, higher inflation in country A relative to
country B leads to a weaker currency for currency A relative to country
B.
NOTE: Inflation and interest rates, although very similar in concept
and nature, have OPPOSITE effects on currency exchanges, if my memory
serves me correct. If country A has a higher interest rate, then it
will be more in demand, and it will strengthen relative to country B. |
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| The Trucker |
| Posted: Tue Oct 04, 2005 9:08 pm |
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"shaun" <shankar1980@gmail.com> wrote in message
news:1128322317.917720.324520@o13g2000cwo.googlegroups.com...
[quote:e5782f344b]Can someone tell me what will happen to the exchange rate of a
country's currency if its inflation rises or falls? In simple terms,
can you tell me the step-by-step logical reasoning of whether it will
appreciate or depreciate..
Thanks a lot for the help,
~Shaun
[/quote:e5782f344b]
If we define inflation as an increase in the price of
goods and or an increase in the price of living
as measured in the currency of the country in
question then an increasing inflation rate will
be seen as an apparent decrease in the value of
the currency. Assuming that other countries
experience LESS price increase then the value
of the subject country's currency will fall relative
to the other currencies. This will continue to
happen to the US currency so long as the US
sucks up oil like crazy and other countries are
more intelligent about it. The price of oil as
measure in gold has not risen very much.
And to attempt to address this problem by
screwing around with interest rates is more
than just plain stupid. It is suicidal. The proper
solution to the falling dollar is to get rid of the
borrowing and oil glutting Repugnicans. Tax
increases will be necessary to restore the
viability of the US dollar. The most direct
rout is to throw a $2 per gallon tax on gas.
That will make the stuff cost $5 a gallon as
it should have been for the last 5 years. That
will free up some diesel fuel and heating oil
and allow the thrifty people in this nation
to get by for a while until we can make other
arrangements like reinstating the PROGRESSIVE
income tax.
--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org
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| Guest |
| Posted: Wed Oct 26, 2005 6:54 am |
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In sci.econ, The Trucker <mikcob@verizon.net> wrote:
[quote:59ae75fdfd]The price of oil as
measure in gold has not risen very much.
[/quote:59ae75fdfd]
Oh? Got an overlaid graph to substantiate that? ISTM that gold has been
all but languishing, while oil has skyrocketed. |
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| The Trucker |
| Posted: Fri Nov 04, 2005 9:33 pm |
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<EskWIRED@spamblock.panix.com> wrote in message
news:djocck$mvk$1@reader2.panix.com...
[quote:3cea71936b]In sci.econ, The Trucker <mikcob@verizon.net> wrote:
The price of oil as
measure in gold has not risen very much.
Oh? Got an overlaid graph to substantiate that? ISTM that gold has been
all but languishing, while oil has skyrocketed.
[/quote:3cea71936b]
Well, let's see... On about Nov 20 2001 or so the price of gold
was $310 per ounce. The price of oil was $23 per barrel.
Gold is now $470 - $480 and oil is $60. So one ounce of gold
would have bought 13.4 barrels of oil and now it will only
buy 7.9 barrels of oil ( a 41% increase in price) However, $310
dollars would have bought that same 13.4 barrels of oil in Nov.
of 01 and now it will only buy 5.1 barrels of oil. (62% increase).
A good bit of the "apparent" increase in the price of oil is
actually a decrease in the "value" of the dollar (and the yen
and all other fiat currencies). This decrease in the "value"
of fiat money is probably a good thing.
--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org |
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