Foreign exchange market (3/15)
•The buying and selling of currency.
•the exchange rate is determined in the foreign currency markets.
•it is the price of a currency.
Tips
•always change the demand line on one currency graph, The S line on the other currency's graph
•move the lines of the two currency graphs in the same direction (right or left) and you will have the correct answer
•if D on one graph increases, S on the other will also increase
•if D moves to the left, S will move to the left on the other graph.
Changes in exchange rates
•exchange rates are a function of the supply and demand for currency.
-an unease in the supply of a currency will make it cheaper to buy one unit of that currency.
-a decrease in supply of a currency will make it more expensive to buy one unit of that currency.
•an increase in demand for a currency will make it more expensive to buy unit of that currency
•a decrease in demand for a currency will make it cheaper to buy one unit of that currency
Appreciation
•it occurs when the exchange rate of hat currency increases
Exchange rate determinants
•consumer tastes
•relative income
-imports tend to be normal goods
•relative price level
•speculation
Depreciation
•occurs when the exchange rate of that currency decreases.
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