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Conclusion of Foreign Exchange Rate

The foreign exchange market facilitates the exchange of national currencies, with exchange rates reflecting the value of one currency against another. Demand for foreign exchange arises from international trade and investments, while supply is generated through exports and foreign purchases. Exchange rates fluctuate based on market forces, with appreciation and depreciation reflecting changes in currency value, and the equilibrium rate is established when demand and supply are balanced.

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861 views2 pages

Conclusion of Foreign Exchange Rate

The foreign exchange market facilitates the exchange of national currencies, with exchange rates reflecting the value of one currency against another. Demand for foreign exchange arises from international trade and investments, while supply is generated through exports and foreign purchases. Exchange rates fluctuate based on market forces, with appreciation and depreciation reflecting changes in currency value, and the equilibrium rate is established when demand and supply are balanced.

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wsaras392
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The foreign exchange market is where national currencies are

exchanged. An exchange rate is the value of a country's


currency compared to another nation or economic zone.

Demand for foreign exchange arises when people want to buy


goods and services from other countries, send gifts abroad, or
purchase financial assets from a specific country. On the other
hand, the supply of foreign exchange occurs when a country's
exports lead to foreigners buying its domestic goods and
services, when foreigners send gifts or make transfers, and
when foreigners purchase a home country’s assets.

The exchange rate is determined by market forces of demand


and supply, and it can either appreciate or depreciate.
Appreciation occurs when the domestic currency increases in
value in terms of foreign currency, while depreciation occurs
when the domestic currency decreases in value compared to
foreign currency. In a fixed exchange rate system, devaluation
happens when a government raises the exchange rate to make
the domestic currency cheaper, and revaluation occurs when
the government lowers the exchange rate to make the domestic
currency more expensive.

The equilibrium foreign exchange rate is the rate at which the


demand and supply of foreign exchange are equal. It is
determined by market forces, with an inverse relationship
between the demand for foreign exchange and the exchange
rate, and a direct relationship between foreign exchange supply
and the exchange rate. The equilibrium foreign exchange rate is
graphically determined by the interaction of the demand and
supply curves. Additionally, the managed floating exchange rate
system combines elements of both flexible and fixed exchange
rate systems, allowing a country's central bank to intervene in
foreign exchange markets to moderate exchange rate
movements when necessary.

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