Exchange rate/interest rate/inflation rate

personally i find the currency reading is very challenging.

per Uncovered interest rate parity, %change S(H/L) = high-yielding rate – low-yielding rate. So a positive value in change means the high-yielding currency to be depreciated. nominal interest rate = real interest rate + expected inflation rate.

with these in mind, let’s look at the interplay btw inflation rate & exchange rate. say for example 3 Active strategies. McYelland expects inflation rate for New Zealand is about to accelerate while Japan should remain relatively stable. Q. What do you expect JPY/NZD?

Solution to this saying inflation rate of New Zealand will decrease its real interest rate. I dont understand this. why inflation rate would decrease the real IR? Fisher’s formula gives me the understanding that each country’s real interest rate should be the same. additionally, a higher inflation rate would lead to a high nominal IR. How does it relate to real interest rate? purchasing power?

in the same example question 3. McYelland expects a tighter monetary policy in India. How would it affect INR/USD?

A tighter monetary policy, we would expect interest rate in India would increase. (is it a higher nominal rate or real rate?)

Why a higher rate of INR would lead to INR to appreciate against the USD. Why a higher INR leads to a depreciation in INR/USD, which is in contrary of uncovered interest rate parity…

i have read through this session for a few times and still cannot get the interplay among inflation rate, real interest rate, nominal rate and exchange rate clearly. Look forward to your enlightening views~~

This is very simple, you’re making it complicated.

Look at a country like vietnam. 1 USD is worth 23000 dong… Back in 2001 when I visited, it was 1 USD to 10000 dong.

When inflation is that bad, would you want to invest in that country… What happens when you want to convert your dongs back to USD?