Foreign Exchange
- The buying and selling of currency
- Visiting Europe and exchanging dollars for Euros
- Any transaction that occurs in the Balance of Payments necessities foreign exchange
- The exchange rate (e) is determined in the foreign currency markets ---> (price of currency)
Changes in Exchange Rates
- Exchange rates are a function of the supply and demand for currency
- Increase in supply of currency = decrease in exchange rate of currency
- Increase in demand of currency = increase in exchange rate of currency
Appreciation and Depreciation
- Appreciation: When the exchange rate of currency increases
- Depreciation: When the exchange rate of that currency decreases
Exchange Rate Determinants
- Consumer Tastes
- Relative Income
- Relative Price Level
- Speculation
- Visiting Europe and exchanging dollars for Euros
- Exchange rates are a function of the supply and demand for currency
- Increase in supply of currency = decrease in exchange rate of currency
- Increase in demand of currency = increase in exchange rate of currency
Appreciation and Depreciation
- Appreciation: When the exchange rate of currency increases
- Depreciation: When the exchange rate of that currency decreases
Exchange Rate Determinants
- Consumer Tastes
- Relative Income
- Relative Price Level
- Speculation
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