Foreign exchange rates
G3 Economics - syllabus K343, 2027
What exchange rates are, how a floating rate is determined, why it changes, and how it affects exports and imports.
- What an exchange rate is and why currencies are traded
An exchange rate is the price of one currency in terms of another; currencies are bought and sold for trade, investment and speculation.
- How a floating exchange rate is determined
In a floating system, the exchange rate is set by the demand for and supply of the currency.
- Why exchange rates change
Exchange rates change when demand for exports or imports changes, when interest rates change, or when speculators act.
- Effects of exchange rate changes on exports and imports
An appreciation makes exports dearer and imports cheaper; a depreciation makes exports cheaper and imports dearer.
- Put it together: Choose the currency's direction
A central bank can influence whether its currency rises or falls in value this year. Compare the effects on different groups.