Changes in tastes and preferences for a certain country's goods and services can change the demand for that country's currency
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Income
Assuming that foreign goods and services are normal (rather than inferior) goods, increases in people's incomes in one country can increase their demand for foreign goods and services
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Expectations
People's expectations about the future influence their demand for goods and services today
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exchange rate
The rate at which one currency can be exchanged for another is called the exchange rate
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flexible or floating exchange rate system
Under a flexible or floating exchange rate system, the interaction of demand and supply determines the exchange rate for a given currency.
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fixed or pegged exchange rate system.
Some countries do not use a flexible exchange rate system and instead keep the rate of exchange between their currency and the currency of other countries at a fixed rate. This is called a fixed or pegged exchange rate system.
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appreciated
When the price of currency A rises relative to currency B, currency A has appreciated.
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depreciated
When the price of currency A falls relative to currency B, currency A has depreciated.
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Flashcard (48)