This assignment delves into the complex relationship between monetary policy and exchange rates. It examines various theoretical frameworks, such as the interest rate parity and the Dornbusch model, to understand how changes in domestic interest rates, inflation, and government intervention influence exchange rate movements. The analysis also considers the implications of unconventional monetary policies, like quantitative easing, for exchange rates and the effectiveness of different policy tools in a zero lower bound environment. Empirical evidence from both developed and emerging market economies is utilized to shed light on the real-world impact of these policies.