I just came a cross a seemingly simple question, but a very interesting one from Issa Michuzi's Website. In the post, a visitor who goes by the alias David Villa asks, are foreign exchange rates true indicators of economic standards? He goes on to explain that say you have country A whose economic level is in all respects higher than country B, should the exchange rate of A's currency compared to B's currency be higher?
None of the visitors to that post could adequately answer that querry, and I thought it would make for an interesting discussion topic here. Would economists and particularly experts in monetary policy, international trade, development economics, etc. help us out with this?
- What determines the exchange rate of a given currency?
- What is the measure of economic level and/or growth?
- What is the relationship between economic level and forex rate (if any)?