Question:
The exchange rate differential between the currencies of two countries is explained by:
The exchange rate differential between the currencies of two countries is explained by:
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Interest-inflation differential = key driver of currency value fluctuations.
Updated On: Jan 17, 2026
- Fiscal deficit differential
- GDP growth rate differential
- Liquidity differential
- Interest-inflation rate differential
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The Correct Option is D
Solution and Explanation
Step 1: Understand exchange rate determination.
- Major factors = interest rate, inflation differential, and purchasing power parity.
Step 2: Conclude.
- Option 4 (Interest-Inflation rate differential) explains exchange rate differences.
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