If people expect that their future purchasing power will decline, what

If people expect that their future purchasing power will decline, what will happen to the exchange rate today?

What will be an ideal response?

ANSWER

Answer: Typically, when people think that the purchasing power of a money is going to decline in the future, due to higher expected inflation, they try to sell that currency today to get into a currency that will have more stable purchasing power. This reduced demand for the currency causes that currency to weaken or depreciate immediately.