Chap 38 Flashcards
Foreign exchange rate
Price of one currency in terms of another
Fixed exchange rate
An exchange rate whos value is set at a particular level in terms of another currency
Floating exchange rate
An exchange rate which can change frequently as it is determined by market forces
Revaluation
A rise in the value of fixed exchange rate (Devaluation)
Appreciation
A rise in the value of a floating exchange rate (Depreciation)
FDI
Foreign Direct Investment:
Setting up production units or buying existing production units in another country
Demand for rupees
- Wish to buy Indian goods
- MNCs sending back profits to India
- Paying interest to Indian residents
- Sending back money to relatives
- Hold in reserves
- Expectation the value will rise
- Buy shares, firms, save in banks
Supply for rupees
- Indians buying foreign goods
- Foreign MNCS sending money home
- Foreigners sending money home
- Indians buying a foreign share, firms
- Expectation the prise will fall
Rate of interest increases
Saving in banks
Demand increases
Value rises
Causes for rise in exchange rate
- More export revenue
- Increase in investment
- Speculators demand increases
Governments influence
Buying and selling currency
Rate of interest
Measures to increase imports/exports
Hot money flow
Money passed around the world to take advantage of differences in exchange and interest rates
