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.

Answered by Jerin G. Economics tutor

2411 Views

See similar Economics GCSE tutors

Related Economics GCSE answers

All answers ▸

Explain the difference between direct and indirect costs.


What are negative externalities, and what policies can the government implement to reduce them?


Explain why average costs of a business may fall as it experiences growth.


Explain the term Economies of Scale. You may use a diagram to help.


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences