EX R Flashcards
To purchase foreign goods, the UK needs to buy foreign currencies. This increases the supply of the pound.
Exports: in order for foreigners to purchases exports, they must purchase pounds. This increases the demand for pounds
How does interest rates affect demand for pounds?
If the interest rate in the UK increases, foreign investors are likely to switch their savings into UK bank accounts in order to benefit from a higher return on savings (hot money). An increase in this flow will increase the demand for pounds, shifting the demand curve to the right an increasing the demand for the bound.
How to speculation affect demand for the pound?
Speculation is the single most important factor which determines the minute by minute value of the pound. They are seeking to make a profit from buying and selling currencies.
If speculators believe that the value of the pound is going to fall against the dollar, they will sell pounds and buy dollars. Therefore, an increase in the supply of the pound will cause a shift to the right and reduce the value of the pounds.
What is the difference between devaluation and depreciation?
Depreciation means the falls because of market forces. Devaluation means the value of the currency officially falls - due to direct government intervention.
What is the difference between revaluation and appreciation?
Appreciation means that value of the currency rises because of market forces.
Revaluation means the value of the currency officially rises - due to government intervention.
