2/9 Class

Question 1

exchange rate movements

Answer 1

depreciation makes the rates move down

appreciation makes the rate move up

Question 2

%change in currency

Answer 2

(S-St-1)/St-1
S=Spot rate(most recent)
St-1= earlier date

Question 3

factors that influence exchange rates

Answer 3

1. change in inflation
2. change in interest rates
3. change in expectations
4. change in government policy
5. change in income levels

Question 4

inflation

Answer 4

impacts trade flows, high inflation in the US –>
drop in demand for US goods for US citizens, more demand for the Euro
for a UK resident less supply of the Euro