Exchange Rates Flashcards
What are exchange rates?
An exchange rate is the price of one currency in terms of another
What are three types of exchange rates?
A floating exchange rate
A fixed exchange rate
A managed exchange rate
What is a floating exchange rate?
A floating exchange rate occurs when governments allow the exchange rate to be determined by market forces
What is a fixed exchange rate?
The Central Bank negotiates with the international Monetary Fund to fix their currency to another one
What is a managed exchange rate?
The Central Bank determines the preferred currency value - and then the currency is free to fluctuate within a certain range of this value
What are factors that affect exchange rate?
Relative interest rates
Relative inflation rates
Net investment
The current account
Speculation
Quantitative easing
What are the consequences of competitive devaluation?
it makes the country’s exports cheaper
It is anticompetitive & upsets international competitors
What are the impacts of changing exchange rates?
Current account balance
Unemployment
Economic growth
Price stability
Living standards
