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One of the questions was to do with, "What determines the demand and supply of a currency in a foreign exchange market" (8 Marks)
What are some relevant points?
What are some relevant points?
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AS Level Oct/Nov Exam 22 Question help
- Thread starter Analiegh
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What Determines the Demand for a Currency?:
The supply of a currency on a foreign exchange market is determined by the following:
The supply of currency is affected by the following:
The supply of a currency on a foreign exchange market is determined by the following:
- Demand for goods, services and investments priced in that currency. If I want to buy Canadian bonds or Canadian maple syrup, then I will need Canadian dollars to do so. If total expenditures, by non-Canadians, on these items rise, the demand for the Canadian dollar will rise.
- Speculators. If I believe, for whatever reason, the Canadian dollar will rise in value in the future, I will want to buy more Canadian dollars today.
- Central banks - Occasionally central banks will buy up a foreign currency to affect the exchange rate.
The supply of currency is affected by the following:
- Demand for goods, services and investments priced in a different currency. If I want Canadian maple syrup, I will need Canadian dollars. To get Canadian dollars, I will have to supply a currency in return, such as yen or U.S. dollars.
- Speculators. If I believe, for whatever reason, the Canadian dollar will fall in value in the future, I will start to sell off my Canadian dollars today (that is, supply them to the market).
- Central banks through increases in the money supply.