Effect of Change in Interest rates on the Price of a London Vacation Moreover

Effect of change in interest rates on the price of a

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American goods. Effect of Change in Interest rates on the Price of a London Vacation Moreover, if the interest rates in the US increase more than in UK, it would be less expensive for an American tourist to take vacation to London. As stated above, the increase in the interest rates will make US dollar stronger than British pound. Due to this appreciation in the US dollars, American dollar will have higher purchasing power than British pound. Since American tourist will be paying using the American dollars, they will end up paying less for vacations in London. Conclusion From the above, discussion it is very clear that in a foreign exchange market, change in interest rates does not only affects the exchange rate but also the value of a currency. A low exchange rate lowers the price of a country’s goods and services for consumers in foreign countries but raises the price of goods for consumer in the country. Therefore, a country may gain an advantage in the international market if it manipulates the value of its currency by artificially keeping its value low.
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References Rittenberg, L. & Tregarthen, T. (2012). Macroeconomics Principles. V. 2.0. Licensed under Creative Commons by-nc-sa 3.0. Retrieved from; ( ). Engel, C. (2016). Exchange rates, interest rates, and the risk premium. American Economic Review , 106 (2), 436-74.
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