Factors Affecting The Exchange Rate (Define and Explain)

Question 1

Factors Affecting The Exchange Rate (Define and Explain):

Floating Rate

Answer 1

This is an exchange rate that is not fixed in relation to other currencies, but changes with respect to other currencies.

Question 2

Factors Affecting The Exchange Rate (Define and Explain):

Inflation

Answer 2

The rate at which the price of goods and services is rising and the buying power of the dollar is falling.

Question 3

Factors Affecting The Exchange Rate (Define and Explain):

Hard Currency

Answer 3

• easily converted to other currencies
• Refers to money that is issued by a nation that is seen as politically and economically stable.
• Are widely accepted around the world as a form of payment for goods and services & may be preferred over the domestic currency.
• Is expected to remain relatively stable through a period of time.
• Includes the U.S. dollar (USD), the euro (EUR), British pound sterling (GBP), the Japanese yen (JPY), the Swiss franc (CHF), the Canadian dollar (CAD), the Australian dollar (AUD), and the New Zealand dollar (NZD).

Question 5

Soft Currency

Answer 5

• hard to convert to other currencies.
• Refers to money with a value that fluctuates, predominantly lower, as a result of the country’s political or economic uncertainty.
• Tend to be avoided by foreign exchange dealers.
• Are believed to be unstable.
• Includes the Zimbabwean dollar (RTGS), Venezuelan bolivar (VES), Russian ruble (RUB), and Chinese yuan (CNY).