Theme 4-global perspectivePack 3- exchange rates - created from Mind Map

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keywords

3 exchange rate systems

factors affecting demand:

factors influencing supply: hot money'imports,spculation,quantitive easing

a country can manage it exchange rate by:interest rates, capital control,foreign currency transactions

weaker pound has many impacts on the macro objectives:

nominal exchange rate:The number of units of the domestic currency that can purchase a unit of a given foreign currency.

real exchange rate- nominal that is adjusted to inflation

bi lateral exchange rate:value of one country's currency against another country.

effective exchange rate: the value of one country's currency against a weighted index of a basket of currencies of all of the country's trading partners.

appreciation and depreciation occurs under floating exchange rate.revaluation and devaluation occurs under a fixed exchange rate.

expressed as an index number

floating exchange rate: price of one currency is determined by the market forces:supply and demand of the currency on the forex market

fixed exchange rate: the value of one currency has a pegged value against other countries.set by the government

managed exchange rate- currency can fluctuate withn a permitted band of fluctuation

it could influence the exchange rate by:

buy its own currency-increase demand and its value

sell its currency-increase supply-reduce value

increase IR-hot money inflow

increased interest rates

expectations of a fall in the value of the pound

fall in exports- fall in demand because people dont have a need for the pound

increase in UK international competitiveness

higher inflation in uk- decrease in demand

increased FDI- increased demand