FOREIGN EXCHANGE
buying and selling of currency
- Any transaction that occurs in the balance of payments
- The exchange rates is determine in the foreign currency markets
CHANGES IN EXCHANGE RATES
-Exchange rates are a function of the supply and demand for currency
- an increase in the supply of currency with decrease the exchange rate of a currency (vice versa)
-A increase in demand of a currency increases the exchange rate of a currency(vice versa)
APPRECIATION AND DEPRECIATION
-Appreciation of a currency occurs when the exchange rate of that currency increase (supply more)
-Depreciation of a currency occurs when the exchange rate of that currency decease (demand more)
EXCHANGE RATE DETERMINANTS
-Consumer tastes
-Relative income
-Relative price level
-Speculation
EXPORTS AND IMPORTS
-Exchange rate is determinant of both exports and imports
-Appreciation of the dollar causes American goods to relatively more expensive and foreign goods to be relatively cheaper thus reducing exports and increasing imports
-Depreciation of the dollar causes American goods to be relatively cheaper and foreign goods to be relatively expansive thus increasing exports and reducing imports
FLOWING RATES
-Depends upon supply and demand of that currency verses other currency is very sensitive to the business cycle and provides options for investment
FIXED RATES
-based upon a country's wiliness to distribute currency and the ability to control the amount
The exchange rate determinants are Consumer tastes, Relative income, Relative price level, and Speculation. Relative income measures your income in relation to other members of society, weighing it against the standards of the day. Cool right (:
ReplyDeletethank you ! your blog was very informative i now know that; Absolute advantage just means a country produces more of a single product than another company, Comparative advantage on the other hand has to do with the opportunity cost of producing a single product over another.
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