1. Exchange Rates Are Like Prices

1. Exchange Rates Are Like Prices

Definitions: -Exchange rate: the worthiness of one currency for the purpose of conversion to some other. Inflation: a general increase in prices and fall in the purchasing value of money. Prospect: the likelihood or likelihood of some future event occurring. 1. Exchange rates are like prices, in that they are determined by demand and supply.

But not absolutely all exchange rates are permitted to float freely, because the governments or central banking institutions of some countries actively intervene in the market for their currency to manipulate its value. Identify one policy a government or central bank or investment company might use to fortify the value of its money and one plan that could weaken the value of a currency. One policy, a Federal government or central bank or investment company might use to fortify the value of its currency is the policy in which they use their reserves of more to purchase its own currency. This will lead to a rise in demand for the currency, which will strengthen the value of their money.

One policy, a Federal government or central bank or investment company might use to weaken the value of its money is the policy in which they lower the level of interest rates in their country. By doing so domestic rates of interest will be lower than interest rates in other countries relatively, that will lead to less foreign financial investment in the home country.

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This is because financial investment far away could be more attractive. Investors which will be buying other countries should exchange the home currency for free, which will boost the supply of the domestic money in the foreign exchange market. This usually weakens the worthiness of the domestic currency. 2. What exactly are the benefits of having a stronger currency? The advantages of having a stronger currency are: downward pressure on inflation, more imports can be bought, and improved home efficiency.

A stronger currency will make imports cheaper, that will increase competition and put pressure on local producers to decrease their prices. They can lower prices due to cheaper imports. Cheaper imports reduce their creation costs. The increased competitiveness will also lead to increased domestic efficiency so that home producers can remain competitive in their industries.

3. What exactly are the benefits of getting a weaker currency? The benefits of having a weaker currency are: increased work in export and domestic industries. Increased employment in export industries credited to a weaker currency occurs because a weaker currency can make exports relatively cheaper. This will increase their competitiveness and will lead to work in the export sectors.

A low exchange rate will make imports more costly, so domestic producers will be more inclined to purchase services and goods from domestic producers. This will increase demand for domestic goods and services, that may lead to an increase in employment. 4. Which determinant of exchange rates offered in the video, do you consider are most attributable to the fluctuating values of currencies on free markets and why?

Relative incomes, relative interest rates, comparative inflation rates, speculation, or the preferences and preferences of global consumers simply? I think that the most attributable determinant of exchange rates presented in the video is “relative inflation rates”. Inflation rates determine a complete country’s prices, which can have a substantial impact on exchange rates. Relatively lower inflation rates than in other countries will increase international demand, because the goods/services in the country with the lower inflation rates will be relatively cheaper. Lastly, choose one world money (aside from the Euro of the US Dollar).

List and describe the factors that may lead to a fall in the way to obtain the selected money in relation to the Euro market. Chosen currency: GBP. In the next text please suppose that when I say “other EU countries”, After all EU countries except: Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, Sweden, and England.

There are several factors that might lead to a fall in the supply of GBP regarding the Euro market. If British people reduce their demand for goods and services from other EU countries, they will be exchanging less GBP for Euros, that will lead to a decrease in the way to obtain GBP. British demand for goods/services from the EU can decrease if earnings in England lower, if British people change their preferences and only non-EU goods/services, and if inflation rates in England are less than in other countries in the EU. Relatively lower inflation rates in England means that goods/services in other EU countries will be more expensive.