Abstract
Financial authorities can form economic policies based on the relationship between interest and exchange rates. However, their success on this subject is controversial. In this study, the effect of interest and exchange rates on macroeconomic performance and banking sector will be discussed. The purpose of the study, in this context, is to demonstrate the effects of the relationship between interest and exchange rate. This is really important in terms of revealing the power of financial authorities.
Highlights
The changes in exchange rates in open economies are one of the most important factors which affect the main economic indicators
With increasing inclination to globalization, the importance of interest and exchange rates has increased in terms of macroeconomic performance
The purpose of this study is to examine the effects of the relation between interest and exchange rates
Summary
The changes in exchange rates in open economies are one of the most important factors which affect the main economic indicators. The purpose of this study is to examine the effects of the relation between interest and exchange rates In this regard, the effect of the interaction between interest-exchange rates on macroeconomic variables (inflation, balance of payments, debts, financial growth, investments) and on banking sector will be explained. Since the domestic currency loses its value in this way, the central bank sells foreign currency in order to maintain the foreign exchange rate IMF claimed that the high interest rates may prevent the possible value loss in the domestic currency This way, local assets would become valuable and the rate of foreign capital inflows would increase. The vulnerability is increased (Çinko ve Ak, 2009: 98-101)
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