Please enable JavaScript.
Coggle requires JavaScript to display documents.
Exchange rate (1), Foreign exchange market - Coggle Diagram
Exchange rate (1)
The external demand for Uk currency comes from foreign individuals & orgs who want to change their currency into £ to buy UK goods and services
The more expensive the price of £, the more foreign currency has to be changed to buy it
assuming all else remains constant, this will reduce the quantity demanded for the £
The supply of £ to the foreign currency market depends on the desire of individuals & orgs to change their £ into foreign currency
If the value of the £ increases in terms of foreign currency, means the £ has more purchasing power abroad
Makes foreign goods & services cheaper, fewer £'s are required for any given amount of foreign currency
An increase in the value of the £ should lead to an increase in the quantity demanded of foreign products
If demand for foreign products is price elastic, total spending on imports increases- the price is lower in £'s, significant increase in quantity demanded increases the oeral amoutn spent
In a free market, the price of the currency will adjust until the quantity supplied equals the quantity demanded (equilibrium)
-
Value of currency affects the price of a firm's products abroad- affects sales abroad (i.e. exports)
-
-
-
-