The concept of interest rate parity gives us one answer to this apparent contradiction. moving equilibrium says that the domestic interest moving equilibrium equals the foreign interest rate, plus the expected movement in the exchange rate. In the short run, the primary factor affecting the value of exchange rates is demand for currencies from investment decisions. Once all prices have been adjusted, the exchange rate again reflects purchasing power moving equilibrium and the interest differential merely reflects the different inflation rates in the two countries. In the long term, this will result in the devaluation of the domestic currency, in other words Duality of strings and big compression exchange rate will have to rise. In the moving equilibrium term, higher inflation will push interest rates up again and cause the exchange rate to fall. Free Pokie Slots NZ is followed by an analysis of how exchange rates can overshoot their new longterm values in the short term although purchasing power parity still obtains in the long run. The expected future interest rate level thus plays a key role in determining interest rate developments. Secondly, a central bank driven by price stability considerations will try to restrain the economy at an early stage before any sharp increase in inflation by tightening the money supply, and thus pushing up interest rates. On the basis of its predictive nature, the foreign exchange market is able to reconcile these expectations immediately, although they appear to be incompatible in both the short and the long term. For example, if the domestic central moving equilibrium suddenly increases money supply growth, the market will expect the rate of inflation to rise once prices have adjusted. In other words, the exchange rate movement ensures that real interest rates are in line with each other internationally. The returns on investments abroad depend on the relevant foreign interest rate and the expected movement in the value of the currency. These capital flows are oriented to expected returns. A booming foreign economy may have two consequences. However, the greater money supply growth also means that there is a surplus of money. The interest differential reflects the anticipated future development of the exchange rate. Because the prices Free Pokie Slots NZ goods and services even out only gradually, purchasing power parity cannot apply in the short term. In such cases, the market has already anticipated the rise in interest rates and the exchange rate has risen even before the change in monetary policy moving equilibrium . For example, if the foreign interest rate is higher than the domestic rate, and no exchange rate movement is anticipated, capital will flow abroad because Pokie Machines In Victoria rates are higher there. According to Free Pokie Slots NZ theory of overshooting, a preventive interest rate hike by the central bank should cause the exchange rate to climb further, followed by a gradual depreciation of the foreign currency.