Explain how exchange rates are determined in a floating exchange market
In a FOREX market the exchange rate for a currency is determined by demand and supply provided it is a floating exchange rate. A floating exchange rate means that the rate will change with supply and demand. if the exchange rate is fixed it means that the government manipulate the supply of the currency in order to Keep it at a certain value. If the demand for a currency increases them this will shift the demand curve to the right, this then means that the value of the currency will increase. if the demand for the currency decreases this means that the value of the currency decreases. With regards to the supply of money, if the supply of a certain currency increases this will lead to a lower value for the currency. If the supply decreases them the value of the currency increases respectively.
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