15 floating exchange rates
Exchange rates Learning objec-ve: To develop understanding of the free floa-ng exchange rate system
Key terms • A freely-‐floa-ng exchange rate is determined solely by demand and supply, i.e. by market forces. • Apprecia-on when the value of a freely-‐ floa-ng currency increases. • Deprecia-on when the value of a freely-‐ floa-ng currency decreases.
Task • What causes the supply and demand of GBP to change over -me?
Demand side factors • • • •
Demand for Exports Currency specula-on Interest rates Trade deficit
Supply side factors • Demand for Imports • Currency specula-on • Money supply – Government – Banking sector
• Foreign currency reserves
Key terms • A freely-‐floa-ng exchange rate is determined solely by demand and supply, i.e. by market forces. • Apprecia-on when the value of a freely-‐ floa-ng currency increases. • Deprecia-on when the value of a freely-‐ floa-ng currency decreases.
Task • What causes the supply and demand of GBP to change over -me?
Demand side factors • • • •
Demand for Exports Currency specula-on Interest rates Trade deficit
Supply side factors • Demand for Imports • Currency specula-on • Money supply – Government – Banking sector
• Foreign currency reserves
