2.2.3 Factors Affecting Supply And Demand Of Currencies

Question 1

How does interest rate affect demand and supply

Answer 1

Demand: an increase in interest rate will increase the demand for currency because a country will have to exchange a higher amount of the other countries money to purchase an import

Interest rates in another country: if interest rates are higher in other countries, savers in the us may decide to place money in foreign banks. So they must buy foreign currency and to do this they will have to exchange currency, increasing supply in foreign exchange market

Question 2

How does currency speculator affect supply and demand

Answer 2

They will buy and sell currencies in hope of making a capital gain. They may buy a currency and hope to sell it later for higher price.

Question 3

How does demand for exports affect demand and supply

Answer 3

Demand for a countries exports will lead to higher demand for their currency

Supply: if ur importers buy more foreign goods or services they will have to buy foreign currency, they will have to buy foreign currency with pounds , the flow of pounds into the foreign exchange maerketd provided for importers increases supply