Theme 2 - Exchange Rates 0.0 / 5 ? EconomicsGlobalisation and tradeASEdexcel Created by: becky.65Created on: 21-05-17 10:27 How are floating exchange rates determined? Market forces - how much demand or supply there is for a currency 1 of 8 Where does demand for a currency come from? Importers in foreign countries who are buying are exports and foreign investors who are using FDI to set up businesses in the country 2 of 8 Where does the supply of a currency come from? Importers in the country and investors who are setting up businesses abroad and need to buy foreign currency 3 of 8 Why can exchange rates cause uncertainty? Because they are flexible and vary over time 4 of 8 What happens to domestic businesses if the exchange rate rises? Domestic businesses will lose competitiveness in relavtive to imports 5 of 8 Why can selling exports in a foreign market that has an undervalued exchange rate be a problem? Because of cheaper domestic competition so you would also need to produce in the country to compete effectively 6 of 8 What is an effective exchange rate based on? An exchange rate index that shows the relative strength of a currency compared to a basket of other currencies 7 of 8 What is the exchange rate index useful for measuring? The competitiveness of a currency in comparison to its trading partners 8 of 8
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