How does any currency appreciate or depreciate?

Three major factors that cause a country's currency to appreciate or depreciate relative to another's

• Differences in income growth among nations will cause nations with the highest income growth to demand more imported goods. The heightened demand for imports will increase demand for foreign currencies, appreciating the foreign currencies relative to the domestic currency.
• Differences in inflation rates will cause the residents of the country with the highest flation ratet to demand more imported(cheaper) goods. If a country's inflation rate is higher than its trading partners', the demand for the country's currency will be low, and the currency will depreciate.
• Differences in real interest rates will cause a flow of capital into these countries with the highest available real rates of the interest. Therefore, there will be an increased demand for those currencies, and they will appreciate relative to the currencies of countries whose available real rate of return is low.