Exchange Rate Determination

Exchange rate determination refers to the process of establishing the value of one country’s currency relative to another country’s currency.

Understanding exchange rates and forecasting their movements has become essential for businesses, investors, and policymakers due to increased exchange rate volatility, global economic uncertainties, trade tensions, and geopolitical risks.

The aim of the project is to investigate the factors that influence exchange rates and study the changes in the exchange rate from November 2019 to August 2020, including the effect of Brexit on the exchange rate.

<p>The three main types of exchange rates mentioned in the text are fixed, floating, and managed floating.</p> Signup and view all the answers

<p>In a fixed exchange rate system, the government sets the value of its currency against another currency or a basket of currencies.</p> Signup and view all the answers

<p>The main difference is that in fixed exchange rates, the government intervenes to keep the exchange rate at a desired level, while in floating exchange rates, the value of the currency is determined by supply and demand in the market.</p> Signup and view all the answers

<p>Managed floating exchange rates allow the currency to fluctuate within a certain range, with government intervention to prevent excessive movements outside of this range.</p> Signup and view all the answers

<p>A speculative attack occurs when investors sell the currency in the hope of making a profit due to a large imbalance in the supply and demand for the currency.</p> Signup and view all the answers

<p>The foreign exchange market is a global decentralized market for the trading of currencies, involving a network of banks, brokers, and financial institutions that trade currencies directly with each other.</p> Signup and view all the answers

<p>Fixed exchange rates can help to reduce uncertainty and make it easier for businesses to plan their international transactions.</p> Signup and view all the answers

<p>Global economic uncertainties, trade tensions, and geopolitical risks</p> Signup and view all the answers

<p>Investigating the factors that influence exchange rates</p> Signup and view all the answers

<p>Sets the value of its currency against another currency or a basket of currencies</p> Signup and view all the answers

<p>Fixed, floating, and managed floating</p> Signup and view all the answers

<p>Due to their impact on trade, investment, and monetary policy decisions</p> Signup and view all the answers

<p>By buying or selling its currency</p> Signup and view all the answers

<p>The government can prevent excessive volatility in managed floating rates</p> Signup and view all the answers

<p>Inability to maintain the exchange rate during large supply and demand imbalances</p> Signup and view all the answers

<p>It can fluctuate freely based on economic conditions and investor sentiment</p> Signup and view all the answers

<p>It consists of a network of banks, brokers, and financial institutions engaging in direct currency trading</p> Signup and view all the answers