Understanding Exchange Rates: Dynamics, Influences, and Economic Implications

Introduction Exchange rates play a critical role in global economics, influencing international trade, investment flows, and monetary policy. The purpose of this report is to explore the dynamics of exchange rates, the various factors that influence their fluctuations, and the broader economic implications of these changes. Understanding exchange rates is essential for policymakers, businesses, and investors, as they not only affect the cost of goods and services across borders but also have significant impacts on economic stability and growth.

Main Body Exchange rates can be broadly defined as the price of one currency in terms of another. They can be categorized into fixed, floating, and pegged systems, each with distinct mechanisms and implications for economic policy. Fixed exchange rates are set by a government or central bank and remain stable, while floating exchange rates are determined by market forces