The prices of currencies are one of the most tricky subjects in economics. When will a currency appreciate, and when will it depreciate?

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Of course, this depends on supply and demand in foreign exchange markets. But, what determines this? There are two major theories in economics that try to explain this. The first is purchasing power parity and the second is interest rate parity. In this video, I discuss both as well as highlight the role of arbitrage and expectations.

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Narrated and produced by Dr. Joeri Schasfoort (University of Cape Town)
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