exchange rate Flashcards

1
Q
  1. What is the exchange rate?
A
  • price of one currency in terms of another.
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2
Q
  1. What are the 3 factors affecting the demand for a currency?
A
  • interest rates.- currency speculators.- the demand for exports.
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3
Q
  1. What are the 3 factors affecting the supply of currency?
A
  • interest rates in other countries- currency speculators- the demand for imports.
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4
Q
  1. What is the foreign exchange market?
A
  • market where foreign currencies can be bought and sold.
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5
Q
  1. What is the meaning appreciate?
A

where the value of a currency rises owing to market forces- the exchange rate increases as a result.

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6
Q
  1. What is revalued?
A
  • when a government fixes a new higher exchange rate.
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7
Q
  1. What is depreciate?
A
  • where the value of a currency falls owing to market forces - the exchange rate falls as a result.
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8
Q
  1. what is devalued?
A
  • when a government fixes a new lower exchange rate.
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9
Q
  1. 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.

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10
Q
  1. 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.
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11
Q
  1. 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

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12
Q
  1. 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
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13
Q
  1. 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.
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