Foreign Exchange Rate: A Theoretical Introduction

Abstract

The field of international financial management is concerned with how decisions are made, which are represented in how to obtain resources and allocate these resources on a global scale. The way these decisions are made at the international level differs from the local level, and the reason for the difference is due to each of the exchange rates, interest rates, and inflation rates. Therefore, the international financial manager must be capable and able to deal with different (currencies, interest rates, inflation rates). Accordingly, the financial manager needs a basis for the relationship between exchange rates, interest rates, and inflation rates. This relationship is revealed through: equilibrium exchange rates, the Fisher effect, and the interest rate parity theory. Which is the subject of this study.