Capital inflows drive real exchange rate appreciation in developing countries.
The article looks at how money coming into a country and how flexible its currency is can affect the value of its money compared to other countries. They found that when money comes in from other countries, the local money becomes worth more. Among different types of money coming in, investments have the biggest impact on making the local money worth more. But if the country's currency is more flexible, it can help prevent the local money from becoming too valuable because of the money coming in.