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Mindmap
Posted by Economics Corner
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8:49 AM
exchange rate
Posted by Economics Corner
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3:34 AM
Define exchange rate.
The rate at which one currency can be exchanged for another
Explain what is meant by the appreciation of exchange rate.
A rise in the value of the country’s currency (e.g. £) in relation to other currencies – each £ buys more of the other currency.
Explain what is meant by the depreciation of exchange rate.
A fall in the value of the country’s currency (e.g. £) in relation to other currencies – each £ buys less of the other currency.
The value of exports might be affected by changes in a country’s exchange rate. Discuss why exchange rates fluctuate.
Exchange rates fluctuations reflect changes In the demand for and supply of the currency in the foreign exchange market which can be attributed to:
§ Credit items / capital inflows ( Demand for the country’s currency )
§ Debit items / capital outflows ( Supply of the country’s currency )
Comment on factors affecting current account flows / capital flows
Exchange rates are determined by the interaction of demand for, and supply of, the currency in the foreign exchange market. The factors causing changes in floating exchange rates are many and varied.
Exchange rates are determined by the demand for and the supply of currencies on the foreign exchange market. What are the factors which influence the demand and supply for currencies?
Relative interest rates, the demand for imports (D£), the demand for exports (S£), investment opportunities, speculative sentiments, global trading patterns, changes in relative inflation rates
Explain how appreciation and depreciation of exchange rate can affect the balance of payment.
A depreciation in exchange rate should lead to a rise in demand for exports, a fall in demand for imports – the balance of payments should ‘improve’
An appreciation of the exchange rate should lead to a fall in demand for exports and a rise in demand for imports – the balance of payments should get ‘worse’ But
The volumes and the actual amount of income and expenditure will depend on the relative price elasticity of demand for imports and exports.
The rate at which one currency can be exchanged for another
Explain what is meant by the appreciation of exchange rate.
A rise in the value of the country’s currency (e.g. £) in relation to other currencies – each £ buys more of the other currency.
Explain what is meant by the depreciation of exchange rate.
A fall in the value of the country’s currency (e.g. £) in relation to other currencies – each £ buys less of the other currency.
The value of exports might be affected by changes in a country’s exchange rate. Discuss why exchange rates fluctuate.
Exchange rates fluctuations reflect changes In the demand for and supply of the currency in the foreign exchange market which can be attributed to:
§ Credit items / capital inflows ( Demand for the country’s currency )
§ Debit items / capital outflows ( Supply of the country’s currency )
Comment on factors affecting current account flows / capital flows
Exchange rates are determined by the interaction of demand for, and supply of, the currency in the foreign exchange market. The factors causing changes in floating exchange rates are many and varied.
Exchange rates are determined by the demand for and the supply of currencies on the foreign exchange market. What are the factors which influence the demand and supply for currencies?
Relative interest rates, the demand for imports (D£), the demand for exports (S£), investment opportunities, speculative sentiments, global trading patterns, changes in relative inflation rates
Explain how appreciation and depreciation of exchange rate can affect the balance of payment.
A depreciation in exchange rate should lead to a rise in demand for exports, a fall in demand for imports – the balance of payments should ‘improve’
An appreciation of the exchange rate should lead to a fall in demand for exports and a rise in demand for imports – the balance of payments should get ‘worse’ But
The volumes and the actual amount of income and expenditure will depend on the relative price elasticity of demand for imports and exports.
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