exchange rate key terms

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8 Terms

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exchange rate

the price at which one currency can be exchanged for another

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factors affecting the supply

  1. money supply

  2. speculation

  3. imports

  4. capital flight

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factors affecting the demand

  1. interest rates

  2. speculation

  3. exports

  4. inward FDI

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fixed exchange rate systema

a system where the value of a currency is pegged to another currency, a basket of currencies, or a commodity like gold, and is maintained at a stable rate

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factors affecting the exchange rate

  1. uncertainty

  2. future tariffs

  3. monetary policy

  4. relative strength elsewhere

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depreciation

a decrease in the value of the pound relative to other currencies

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consequences of the depreciation

  • improvements in exports which will increase AD

  • increased costs of imports, increase costs of production and shift SRAS to the left

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appreciation

an increase in the value of the pound relative to other countries