Exchange Rate vs Interest Rate
Exchange rates and interest rates are both equally important in determining a country’s economic growth, inflation, levels of foreign trade, and other economic determinants. Exchange rates and interest rates are closely related, yet in no way they represent the same thing. These two very different concepts will be clearly explained in the following article along with an explanation of the relationship between the two, and the significance of them to a country’s economic stability and financial health.
What is Exchange Rate?
The exchange rate between two currencies represents the value of one country’s currency in terms of another country’s currency. The exchange rate between two currencies can be obtained from many sites on the internet, and this will clearly show how much one’s local currency needs to be used to purchase another currency. For example, when an American travels to Japan he will have to purchase Japanese yen in order to purchase goods and services. Assume that he travels to Japan on the 28th September 2011. The exchange rate between the United States Dollar and Japanese Yen on that day is 1USD=76.5431JPY. In this case, the dollar is much stronger as one USD can buy 76.5431 JPY. In the event that the currency values change as 1USD=70.7897JPY, the USD has depreciated in value as now one USD can only buy 70.7897, as compared to the 76.5431 earlier. There are a number of factors that can affect interest rates, which include demand and supply for a particular currency, trade levels between two countries, monitory policy, and other economic conditions.
What is Interest Rate?
利率代表一个国家内借贷的成本。充当利率基准的利率是该国财政部设定的长期财政账单。利率的水平在一个国家的经济政策上是因为它们是否需要减少通货膨胀,从而增加利息,或通过降低利率刺激扩张和经济增长。有兴趣促进经济增长的国家将降低利率,以诱使公司借钱,投资更多,扩大更多并创造更多就业机会。一个有兴趣减少通货膨胀的国家将增加利率,以便个人节省更多并减少借贷,从而减少经济供应量。在确定利率时,财政部还将考虑关键因素,例如经济中的无风险利率(国库账单率,因为T账单被认为是非常安全的)通货膨胀的期望。
What is the difference between Exchange Rate and Interest Rate?
利率和汇率是两米ost powerful concepts for a country’s economic health and growth. Interest rates represent the cost of borrowing funds in an economy, whereas exchange rates represent the cost of one currency in terms of another currency. Both these factors are influenced by a country’s monitory policy, imports and exports, demand and supply of a particular currency, economic policies and plans as well as political factors. There is a close relationship between interest rates and exchange rates. Taking an example, if an investor decides to purchase US Treasury securities, he will have to purchase USD in order to do so. When interest rates are rising, he will want to purchase T bills, and his demand for USD will increase, strengthening the USD in relation to the currency sold. If the interest rates fall, the investor will want to sell T bills, therefore, will sell US dollars; this will result in a drop in the value of the USD in relation to the currency bought instead.
In a nutshell: Exchange Rate and Interest Rate • Interest rates represent the cost of borrowing funds in an economy, whereas exchange rates represent the cost of one currency in terms of another currency. • Interest rates and exchange rates are both affected by a country’s monitory policy, imports and exports, demand and supply of a particular currency, economic policies and plans, as well as political factors. •利率和汇率彼此相关,在T票据增加的情况下,利息将欣赏美元,利息下降将使美元贬值。 |
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