Studied by 3 peopleexchange rate
Fixed ________: value of a currency is fixed to the value of another country.
Fixed exchange rate
value of a currency is fixed to the value of another country
Floating exchange rate
the exchange rate between two currencies is the price of one in terms of the other
Monetary exchange rate
the government usually sets a range between which the exchange rate should remain
Appreciation
increase in the value of the exchange rate in comparison to other currencies operating within a floating rate system
Depreciation
decrease in the value of the exchange rate in comparison to other currencies operating in a floating exchange
→ Overvaluation
imports are cheaper in local currency
→ Undervaluation
when a currencys value in foreign exchange is low
Fixed exchange rate
value of a currency is fixed to the value of another country
Floating exchange rate
the exchange rate between two currencies is the price of one in terms of the other
Monetary exchange rate
the government usually sets a range between which the exchange rate should remain. It is the currency in which value and exchange rates are influenced by intervention from a central bank
Appreciation
increase in the value of the exchange rate in comparison to other currencies operating within a floating rate system
Depreciation
decrease in the value of the exchange rate in comparison to other currencies operating in a floating exchange
Overvaluation
A company is considered overvalued if it trades at a rate that is unjustifiably and significantly in excess of its peers
Balance of payments
the current account balance tends to worsen when the currency appreciates because exports become more expensive in comparison to imports.
Undervaluation
a security or other type of investment that is selling in the market for a price presumed to be below the investment's true intrinsic value.
Employment
unemployment may increase as a result of appreciation because this would increase the relative price for exports and therefore reduce the demand for exports.
Inflation
if the currency appreciates and this results in unemployment, then consumption would likely decrease.
Economic growth
as a result of falling exports and higher unemployment, appreciation is likely to lead to lower rates of economic growth in the long run.
Note
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