Supply and demand, along with other factors like trade barriers and productivity, play vital roles in determining a country's currency value.
One crucial factor in establishing the value of a country's currency is supply and demand. When rates of return are higher in a country compared to others, it attracts foreign funds, leading to an appreciation of the currency. Conversely, lower rates of return result in currency depreciation.
Other factors influencing exchange rates in the long run include relative trade barriers, preferences for domestic and foreign goods, and differences in productivity. These factors can impact a nation's currency value in the global market.
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