I'm a complete newbie to this foreign exchange stuff and was reading about the impact a country's price levels have on exchange rates.
So from what I understand, the general idea is that inflation leads to a decrease in value of a country's currency (depreciation).
increased prices in goods in a country --> the country's exports will be less competitive --> so demand for the exports fall --> demand for the country's currency falls --> and this leads to depreciation of currency
however, it's also said that:
with a depreciated currency -> imports will be more expensive BUT the country's exports will be cheaper and more competitive --> then won't demand for currency rise instead?
If so, doesn't this contradict the first statement? It seriously confuses me. Inflation that leads to depreciation will then lead back to appreciation of the currency again? I know I'm probably missing something here, but this just makes no sense from the way I picture it.