ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the international monetary fund
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the gold standard
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demand and supply in the marketplace
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the World Bank
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Detailed explanation-1: -Exchange rates are determined just like other prices: by the interaction of supply and demand. At the equilibrium exchange rate, the supply and demand for a currency are equal. Shifts in the supply or demand for a currency lead to changes in the exchange rate.
Detailed explanation-2: -Currency prices can be determined in two main ways: a floating rate or a fixed rate. A floating rate is determined by the open market through supply and demand on global currency markets. Therefore, if the demand for the currency is high, the value will increase.
Detailed explanation-3: -1. In the goods market, a positive shock to the exchange rate of the domestic currency (an unexpected appreciation) will make exports more expensive and imports less expensive. As a result, the competition from foreign markets will decrease the demand for domestic products, decreasing domestic output and price.