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Exchange rates
AS Level Economics…read more

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What are exchange rates?
Also known as forex
Determines how much one currency is worth
in terms of another
Market is one of largest in the world…read more

Slide 3

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Market based exchange
rate change whenever
values of either currency
Demand > supply =
currency more valuable
Demand increases with
increase in investors, high
interest rates, low inflation
Supply increases with
federal mint printing…read more

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Fixed exchange rate
Also called pegged exchange rate
Currency value matched with value of another
single currency/basket of currencies/another
measure of value (gold, etc)
Used to stabilize currency
Does not allow for automatic adjustment in
balance of trade
How much ever you
pull, it wont budge!…read more

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Floating exchange system
Value allowed to fluctuate in forex market
Dampen impact of shocks in business cycle
automatic adjustment
Not very stable
May be technically called `managed float'
since government intervenes in case of
extreme appreciation/depreciation
Both the
euro and
pound are
currencies!…read more

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Rise of value of currency with respect to
Typical of floating exchange rate system
Often caused by economic growth in country
assets wanted in national currency
The yen can now
buy that much
more American
dollars…read more

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