| Definition |
The value of one currency expressed in terms of another currency. |
The rate at which the general level of prices for goods and services rises over time. |
| Measurement |
Quoted as units of foreign currency per domestic currency or vice versa. |
Measured as a percentage increase in Consumer Price Index (CPI) or similar indices. |
| Impact on Economy |
Affects international trade, imports, exports, and capital flows. |
Influences purchasing power, cost of living, and interest rates. |
| Determinants |
Interest rates, trade balances, inflation differences, geopolitical factors. |
Monetary policy, supply and demand of goods, wage changes, production costs. |
| Volatility |
Can be highly volatile due to market speculation and economic events. |
Generally changes gradually but can spike during economic crises. |
| Policy Influence |
Central banks may intervene to stabilize or influence currency value. |
Monetary authorities target inflation through interest rates and money supply. |
| Effect on Consumers |
Impacts cost of imported goods and foreign travel expenses. |
Determines real income and affordability of goods and services. |
| Relation to Each Other |
Exchange rates can be affected by relative inflation rates between countries. |
Inflation can influence exchange rates through changes in competitiveness. |
| Examples |
USD to INR exchange rate, Euro to Dollar exchange rate. |
Annual inflation rate of 4%, 6%, etc. |
exchange rate vs inflation rate