Podcast
Questions and Answers
What is the effect of an appreciation of a nation’s currency on the prices of foreign goods?
What is the effect of an appreciation of a nation’s currency on the prices of foreign goods?
- Foreign goods become scarce
- Foreign goods become cheaper
- No impact on the prices of foreign goods
- Foreign goods become more expensive (correct)
In a flexible exchange rate system, what determines the exchange rate?
In a flexible exchange rate system, what determines the exchange rate?
- Supply and demand (correct)
- Interest rates
- Government regulations
- Gold reserves of the country
What brings the quantity demanded and quantity supplied into balance in the foreign exchange market?
What brings the quantity demanded and quantity supplied into balance in the foreign exchange market?
- The foreign exchange market itself (correct)
- Changes in interest rates
- Government intervention
- Fluctuations in gold prices
What does the horizontal axis indicate in a graph measuring the dollar price of a foreign currency?
What does the horizontal axis indicate in a graph measuring the dollar price of a foreign currency?
What is the impact of a depreciation of a nation’s currency on the prices of foreign goods?
What is the impact of a depreciation of a nation’s currency on the prices of foreign goods?
An appreciation of a nation’s currency will make foreign goods cheaper
An appreciation of a nation’s currency will make foreign goods cheaper
In a flexible exchange rate system, the exchange rate is determined by demand only
In a flexible exchange rate system, the exchange rate is determined by demand only
The supply of foreign exchange originates from purchases of goods, services, and assets by Americans from foreigners
The supply of foreign exchange originates from purchases of goods, services, and assets by Americans from foreigners
The foreign exchange market brings the quantity demanded and quantity supplied into imbalance
The foreign exchange market brings the quantity demanded and quantity supplied into imbalance
The dollar price of the English pound is measured on the vertical axis in a graph of the foreign exchange market equilibrium
The dollar price of the English pound is measured on the vertical axis in a graph of the foreign exchange market equilibrium
Study Notes
Impact of Currency Appreciation and Depreciation
- An appreciation of a nation's currency makes foreign goods cheaper.
- A depreciation of a nation's currency makes foreign goods more expensive.
Determinants of Exchange Rate
- In a flexible exchange rate system, the exchange rate is determined by the forces of demand and supply.
Foreign Exchange Market
- The supply of foreign exchange originates from purchases of goods, services, and assets by Americans from foreigners.
- The quantity demanded and quantity supplied are brought into balance in the foreign exchange market.
Graphing the Foreign Exchange Market
- The horizontal axis in a graph of the foreign exchange market equilibrium measures the quantity of foreign currency.
- The vertical axis in a graph of the foreign exchange market equilibrium measures the price of foreign currency in terms of the domestic currency.
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Description
Learn about the foreign exchange market and how different currencies are traded. Understand how exchange rates affect the prices of foreign goods and the impact of currency appreciation and depreciation.
