April 15, 2015
Foreign Exchange (FOREX): The buying and selling of currency.
The exchange rate (e) is determined in the foreign currency market. (The exchange rate is the price of a currency)
Tips
- Always change the D line on the one currency graph, the S line in the other currency graph
- Moves lines of two currency graphs in the same direction and you will have the correct answer.
- If D on one graph moves up then so will the S on the other graph. And same if D on one graph moves left then S on the other graph will also move left.
Exchange rates are a function of the supply and demand for currency.
- Increasing of supply in a currency will make it cheaper to buy one unit of that currency.
- Decreasing in supply of a currency will make it more expensive to buy one unit of that currency.
- Increase in demand for a currency will make it more expensive to buy one unit of that currency.
- Decrease in demand for a currency will make it more cheaper to buy one unit of that currency.
Appreciation: Appreciation of a currency occurs when the exchange rate of that currency increases
Exchange rate determinants
- Consumer taste
- Relative income
- Relative price level
I like how your notes are very organized and everything is easy to read. However, I noticed you don't have the definition of purchasing parody; which is when currency rates are set by international markets and changes would be based on actual currency power of currencies.
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