exchange rate

Question 1

7. What is the exchange rate?

Answer 1

• price of one currency in terms of another.

Question 2

8. What are the 3 factors affecting the demand for a currency?

Answer 2

• interest rates.- currency speculators.- the demand for exports.

Question 3

9. What are the 3 factors affecting the supply of currency?

Answer 3

• interest rates in other countries- currency speculators- the demand for imports.

Question 4

10. What is the foreign exchange market?

Answer 4

• market where foreign currencies can be bought and sold.

Question 5

11. What is the meaning appreciate?

Answer 5

where the value of a currency rises owing to market forces- the exchange rate increases as a result.

Question 6

12. What is revalued?

Answer 6

• when a government fixes a new higher exchange rate.

Question 7

13. What is depreciate?

Answer 7

• where the value of a currency falls owing to market forces - the exchange rate falls as a result.

Question 8

14. what is devalued?

Answer 8

• when a government fixes a new lower exchange rate.

Question 9

15. What is the impact on imports and exports after the appreciation?

Answer 9

imports :- demand will rise as goods become cheaper.
exports:- demand will fall as goods of the native country have become expensive.

Question 10

16. what is impact on current account after appreciation?

Answer 10

• it is likely to be negative. as there will be less exports as demand falls and there will be more imports as demand rises.

Question 11

17. What is the impact on imports and exports after the depreciation?

Answer 11

imports :- demand will fall as goods become expensive.
exports:- demand will rise as goods of the native country have become cheaper

Question 12

16. what is the impact on the current account after depreciation?

Answer 12

• it is likely to be postive. as there will be more exports as demand rises and there will be less imports as demand falls

Question 13

18. what could the government do if there is a persistent current deficit?

Answer 13

• is to let the currency depreciate as demand for imports will fall and demand for exports will rise.