How does currency valuation depend on the cash reserve ratio for a country?

Question

Currency valuation (with respect to other currencies) is an important parameter in finance, but how is it related to the cash reserve ratio?

In the title for your question, you use the term "cash reserve ratio". Do you mean "foreign reserves" as in, the foreign reserves that a country might use to defend its currency? Or are you talking about "bank reserves" as it applies to interest rates, and then how interest rates affect the associated exchange rates? — bill_080, Apr 19 '11 at 16:54

bill_080 · Accepted Answer · 2011-04-19 17:47:22Z

Here's a little bit of everything.

1) Some papers on foreign reserves that are used to defend a country's currency, and the flexibility of their exchange rate:

2) Some papers on generic modeling of exchange rates:

Figure 1 in the above link is a common view of the short/medium/long-term variables that affect exchange rates.

3) If you're trying to play with exchange rates as a retail investor, you need to be aware of the game/scams:

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