The balance of payments and exchange rates Flashcards
1
Q
What is the exchange rate between two currencies?
A
The amount of one currency that mus be paid to acquire one unit of the other currency
2
Q
What makes up the demand for a country’s currency?
A
- It’s exports
- Income payments and transfers
- Capital inflows
- Reserve currency
3
Q
What changes shifts in supply and demand of exchange rates?
A
- Rise in domestic price of imports
- Rise in foreign price of imports
- Changes in price levels
- Capital movements
4
Q
What is purchasing power parity?
A
Comparing different country’s currencies through the “basket of goods” approach
