What might cause an appreciation of a floating exchange rate? Discuss whether an appreciation of a country's exchange rate will always be beneficial to that country. a) what might cause an appreciation of a floating exchange rate? b) Discuss whether an appreciation of a country's exchange rate will always be beneficial to that country. (15) A free, fluctuating or floating exchange rate means the existence of a free or competitive foreign exchange market where the price of one currency in terms of another is determined by the forces of supply and demand operating without any official interference. ====================================================================== A rise in the price of a currency in terms of another currency is called an appreciation. ================================================================= The following figure shows the equilibrium price of pounds in terms of U.S dollars. Short and long-term movements in the exchange rate, like any price, are caused by changes in market demand and supply conditions. The appreciation of a country's currency will occur due to either an increase in demand or fall in supply of that currency. The demand for sterling (pounds) in the FOREX markets comes from many sources UK goods and services are exported overseas - . if there is an increase in exports this will create an inflow of currency into to the UK which needs to be turned into sterling this will increase demand for the sterling . When US consumers but British Whisky they supply dollars and this is eventually translated into a demand for pounds. This will cause an outward shift in the demand curve for sterling, thus causing the currency to appreciate. Foreign long te... ... middle of paper ... ...viously cause a serious fall in living standards. Exchange rate and inflation: An appreciation of the exchange rate helps to control cost and price inflation in the economy. A fall in import prices means that it is cheaper to import raw materials, components, finished manufactured products leading to an outward shift in Short Run Aggregate Supply shown in diagram - this has a direct impact on the Retail Price Index Tougher for domestic companies to compete with cheaper imports - lower profit margins as businesses have to adjust (less pricing power in their markets) Slower growth of exports (leading to a slowdown in aggregate demand - possibly the emergence of a negative output gap where actual GDP A bigger trade deficit represents a net outflow of demand from the circular flow of income and spending - leading to less demand-pull inflation.
UK economy goes through difference series of pattern with booms to slumps. Every business does well in the time period of boom and most businesses collapse in the time period of slump or recession. Other economy changes that have influence on ASDA are interest rate, wage rate and inflation rate.
So when the dollar is depreciating, the exchange rate becomes smaller. Exchange rate (foreign exchange rate, forex rate or FX rate) is the number of units of a given currency that can be purchased for one unit of another currency. The United States capital markets are becoming more attractive to foreign investors. Since the dollar is falling, it makes foreigner’s investment in the United States more affordable. Therefore, foreigners take this opportunity to invest in the United States.
Historically, this is outlined in the domestic societal framework (a rationalist point of view dictating political outcomes as a direct result of domestic material interests in society). Whatever society wants, society gets, leaving the consumer is to benefit from a fixed exchange rate. Competition exists between all interests. Whatever interest dominates takes the winning interest. The winning interest, then, determines the outcome. With businesses facing pressure to decrease domestic prices, consumers now have the upper hand. (Wellhausen, 10-2-14). Thus, due to the enhancing credibility of the government, consumers also are to benefit from a fixed exchange rate. (Multiple governments
It is generally known that gold is widely used as an investing object storing precious value. However, gold investment dominates the risk because of several factors, and one of the most influencing factors is gold’s price fluctuation. There are three causes of the fluctuation of gold’s price, which are price mechanism, the central bank and emergency.
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Economic risk is another type of exchange risks companies have to consider when dealing globally. Changes in exchange rates are bound to affect the relative prices on imports and exports, and that will again affect the competitiveness of a company. An UK exporter dealing with companies in the US would not want the US$ to depreciate, because it would make the exports more expensive for the US market, thus the company will loose business.
The stability of currency values plays a significant role for economic and financial stability. It is not difficult to see the exchange rate fluctuations are widely regarded as damaging. As the movements of the exchange rate have significant and large effects on the trade balance, resource allocation, domestic prices, interest rate, national income and other key economic variables. Then can exchange rate movements be predicted by these fundamental economic variables?
As an aftereffect of inflation, the purchasing power of a unit of money falls. For instance, a pack of gum that costs $1 and if inflation rate is 2% then in a given year will cost $1.02 the following year. As products and services require more cash to buy, the implicit value of that currency falls.
As the foundation for the foreign exchange process, exchange rates are one of the most important elements in business, both internationally and domestically. Defined as the rate at which one currency may be converted into another, exchange rates are used by countries in order to purchase products or services from one another. When examining these exchange rates it is important to note that their two distinct types of rates used for global trade: nominal and real.
The foreign exchange market is fundamentally a market in which various national currencies are bought and sold. There are as many currencies as many foreign nations. In any international transaction, it involves conversion of one currency into another. Foreign exchange markets is the mechanism for the arrangement of converting one currency into another. When we buy commodities from foreign countries, we have to convert our currency into foreign currency to make payment. Here we are going to have a glimpse at various aspects of foreign exchange markets.