International trade (OCR A-Level Economics): Flashcards
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Practise the cards
15 cards from this deck
What is an exchange rate?
What is an exchange rate?
Price of one currency in terms of another
How is a floating exchange rate determined?
How is a floating exchange rate determined?
By free market forces of supply and demand
How is a fixed exchange rate determined?
How is a fixed exchange rate determined?
Set and maintained by government or central bank
What is a managed float (dirty float)?
What is a managed float (dirty float)?
Market forces with occasional government intervention
How do higher interest rates affect exchange rates?
How do higher interest rates affect exchange rates?
Attract foreign capital, causing exchange rate to rise
How does lower inflation affect currency value?
How does lower inflation affect currency value?
Makes currency more valuable (higher purchasing power)
How does political stability affect exchange rates?
How does political stability affect exchange rates?
Attracts foreign investors, strengthening currency
How does speculation affect currency demand?
How does speculation affect currency demand?
Investors buy more if they expect future strengthening
Where is equilibrium in a floating exchange rate system?
Where is equilibrium in a floating exchange rate system?
Where supply and demand curves intersect
Central bank action if currency undervalued
Central bank action if currency undervalued
Buys its own currency using foreign reserves
Central bank action if currency overvalued
Central bank action if currency overvalued
Sells its own currency
Examples of floating exchange rate currencies
Examples of floating exchange rate currencies
USD, EUR, GBP
Hong Kong dollar exchange rate system
Hong Kong dollar exchange rate system
Fixed, pegged to US dollar
Danish krone exchange rate system
Danish krone exchange rate system
Fixed, pegged to Euro
What does 'pegged exchange rate' mean?
What does 'pegged exchange rate' mean?
Fixed to another major currency or basket of currencies