Which factors contribute to fluctuations in currency exchange rates on FGX?

Fluctuations in currency exchange rates are influenced by a multitude of economic and financial factors. The correct choice identifies interest rates, inflation, economic indicators, and market sentiment as key contributors to exchange rate variations.

Interest rates play a significant role in currency values because they affect the flow of capital into and out of a country. Higher interest rates tend to attract foreign investment, increasing demand for that country's currency, leading to appreciation. Conversely, lower interest rates can lead to depreciation.

Inflation is another critical factor. A lower inflation rate in a country compared to others generally increases that country's currency value, as purchasing power increases. High inflation tends to devalue a currency, as it erodes purchasing power.

Economic indicators such as GDP growth, unemployment rates, and trade balances provide insights into a country's economic health and can influence investor perception and thus currency value. Strong economic performance boosts confidence in a nation's currency.

Market sentiment reflects the overall attitude of investors towards a particular currency, often driven by news events, geopolitical stability, and economic forecasts. Positive sentiment can enhance currency demand, while negative sentiment can lead to sell-offs.

The other options do not comprehensively cover the multi-faceted nature of currency exchange rate fluctuations. Political events and decisions, for example, are