The exchange rate between countries is influenced by the amount of foreign assets they hold and how easily goods can be swapped between them. When prices can change freely, the exchange rate can vary a lot, but it also depends on how much foreign assets were held before. When prices are sticky, the exchange rate can still change a lot, and it is affected by past differences in economic output and foreign asset levels. The way countries manage their money and assets can lead to the exchange rate moving more than expected, whether prices are flexible or not.