In economics, inflation rate is the increase of average price level (subject to inflation). Take a balloon for example. If its volume is the price level, the inflation rate is the inflation degree of the balloon. In other words, the inflation rate is the degree of decline in the purchasing power of money.
Exchange rate, also known as foreign exchange rate, foreign exchange rate or foreign exchange market, refers to the exchange rate between two currencies, and can also be regarded as the value of one country's currency against another's currency. Specifically, it refers to the ratio or parity between one country's currency and another country's currency, or the price of another country's currency expressed in one country's currency.
Exchange rate changes have a direct regulatory effect on a country's import and export trade. Under certain conditions, by devaluing the local currency, that is, letting the exchange rate rise, it will promote exports and restrict imports; On the other hand, the appreciation of the domestic currency, that is, the decline of the exchange rate, plays a role in restricting exports and increasing imports.
Extended data:
Influencing factors of exchange rate:
1. interest rate: the influence of interest rate level on foreign exchange rate is that short-term capital flows change foreign exchange demand through the difference of interest rate levels in different countries. If a country's interest rate rises, foreign demand for its currency increases, its currency appreciates and its exchange rate falls.
Of course, the influence of interest rate on capital flow needs to consider the influence of forward exchange rate. Only when interest rate changes offset the adverse changes in the future exchange rate can capital flow internationally.
2. Economic growth rate: The higher a country's economic growth rate, the higher its currency exchange rate.
3. Fiscal deficit: If a country has a huge deficit in its budget, its currency exchange rate will decline.
4. Foreign exchange reserves: If a country's foreign exchange reserves are high, its currency exchange rate will rise.
5. Psychological expectation of investors: The psychological expectation of investors is particularly prominent in the international financial market. According to exchange psychology, foreign exchange rate is the concentrated expression of subjective psychological evaluation of money by both foreign exchange supply and demand sides. If the evaluation is high and confidence is strong, the currency will appreciate. This theory plays a vital role in explaining countless short-term or extremely short-term exchange rate fluctuations.
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