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Harry Bindloss


Exchange Rate: The rate at which one currency can be exchanged for another.

Types of exchange rates:
1. A Floating Exchange Rate System

This is determined by market forces. If demand for the currency rises, this will raise
the exchange rate where as if the supply…

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Harry Bindloss

3. Speculation on future movements can lead to major changes in the rate.

4. Governments are not forced to control their economies, for example they do
not have to ensure that domestic inflation is in line with other countries to
ensure their firms are competitive (this is because…

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Harry Bindloss

rates where the currency is allowed to float, but with some element of interference
from the government.

The government may choose to intervene in the foreign exchange market to
influence the value of their currency. They would do this for several reasons:

Lower the exchange rate in order…

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Harry Bindloss

Revaluation ­ Over a short amount of time, or moved up by the government.

Appreciation ­ Changed by supply and demand

A downward movement can be called a depreciation or devaluation.

Devaluation - Over a short amount of time, or moved up by the government.

Depreciation - Changed…

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Harry Bindloss

Financial account ­

Long term investment ­ FDI

Short term investment ­ Flows of "Hot Money"

i/r r/e

i/r r/e

If interest rates in a country go up then you would want to invest in there but you would
need to exchange currencies therefore exchange rates increase. The…




This is 5 well written pages on exchange rate systems and how exchange rates are determined. This is suitable for the unit 4 exams and goes into sufficient detail. Students can adapt them for their own purposes.

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