exchange rate Flashcards
1
Q
- What is the exchange rate?
A
- price of one currency in terms of another.
2
Q
- What are the 3 factors affecting the demand for a currency?
A
- interest rates.- currency speculators.- the demand for exports.
3
Q
- What are the 3 factors affecting the supply of currency?
A
- interest rates in other countries- currency speculators- the demand for imports.
4
Q
- What is the foreign exchange market?
A
- market where foreign currencies can be bought and sold.
5
Q
- What is the meaning appreciate?
A
where the value of a currency rises owing to market forces- the exchange rate increases as a result.
6
Q
- What is revalued?
A
- when a government fixes a new higher exchange rate.
7
Q
- What is depreciate?
A
- where the value of a currency falls owing to market forces - the exchange rate falls as a result.
8
Q
- what is devalued?
A
- when a government fixes a new lower exchange rate.
9
Q
- What is the impact on imports and exports after the appreciation?
A
imports :- demand will rise as goods become cheaper.
exports:- demand will fall as goods of the native country have become expensive.
10
Q
- what is impact on current account after appreciation?
A
- it is likely to be negative. as there will be less exports as demand falls and there will be more imports as demand rises.
11
Q
- What is the impact on imports and exports after the depreciation?
A
imports :- demand will fall as goods become expensive.
exports:- demand will rise as goods of the native country have become cheaper
12
Q
- what is the impact on the current account after depreciation?
A
- it is likely to be postive. as there will be more exports as demand rises and there will be less imports as demand falls
13
Q
- what could the government do if there is a persistent current deficit?
A
- is to let the currency depreciate as demand for imports will fall and demand for exports will rise.
