Exchange Rate Appreciation/Depreciation

• What is the definition of an exchange rate?

  Value of one currency compared to another
• What does an exchange rate indicate?

  How much of one currency can be traded for another
• What is one factor that can lead to currency depreciation?

  Firms moving operations out of the country
• What is another factor that can lead to exchange rate appreciation?

  Speculation of currency appreciation
• How do all these factors influence the market's demand for a currency?

  They cause the currency to become stronger
• What happens to demand for imports when domestic incomes increase?

  Demand for imports increases
• What does it mean when a currency depreciates?

  It loses value compared to another currency
• What is the lowest exchange rate shown in the graph?

  1.1900
• What causes currency depreciation?

  Increased supply of the currency
• How does depreciation differ from appreciation in terms of demand and supply?

  Depreciation occurs with increased supply, appreciation with increased demand
• What is the relationship between rising domestic incomes and imports?

  Higher incomes lead to increased imports
• What is the relationship between exchange rates and currency trading?

  • Exchange rates determine currency value
  • They indicate how much one currency can buy of another
  • Fluctuations affect international trade and investments
• What happens to the supply of a currency when it depreciates?

  The supply of the currency increases
• If the exchange rate is 1.30, how many US dollars can you buy with 1 British pound?

  1.30 US dollars
• What is the variable shown on the y-axis of the graph?

  • The y-axis shows the exchange rate of a currency.
• What occurs when demand for the pound increases?

  The price of the pound goes up
• What is the time period shown in the graph?

  • The graph shows data from March 2023 to January 2024.
• If initially £1 = $1.60 and demand for the pound rises, what could the new rate be?

  £1 = $1.80
• What happens to the British pound if it depreciates against the US dollar?

  More pounds are needed to buy one dollar
• What factors influence changes in exchange rates?

  Demand and supply
• What does exchange rate depreciation mean?

  A currency loses value against another
• What is the highest exchange rate shown in the graph?

  1.3100
• What factor involves foreign companies investing in a country?

  Increase in foreign direct investment
• How do lower interest rates affect currency supply?

  They increase the supply of the pound
• What occurs when firms leave a country regarding currency?

  They sell their pounds, increasing supply
• What happens to the exchange rate based on demand and supply?

  It changes
• What happens when the British pound appreciates against the US dollar?

  You can buy more dollars with one pound
• What are the key factors that can lead to currency depreciation?

  • Fall in relative interest rates
  • Firms moving operations out of the country
  • Increase in domestic incomes and demand for imports
• When did the pound experience a peak in appreciation according to the graph?

  July 2023
• If you wanted to buy this currency, when would have been the best time based on the information in the graph?

  Around March 2023 when the rate was lowest
• What can cause a rise in foreign incomes and demand for exports?

  Rise in foreign incomes and demand for exports
• What is one factor that can lead to exchange rate appreciation?

  Increase in relative interest rates
• What does exchange rate appreciation mean?

  A currency becomes stronger against another
• What are some key events or changes in the exchange rate that can be observed from the graph?

  • There is a sharp spike in the exchange rate around July 2023.
  • The exchange rate experiences significant volatility throughout the time period.
• How does speculation affect currency demand?

  Traders buy currency expecting future value increase
• How would you describe the overall volatility of the exchange rate based on the graph?

  The exchange rate shows significant volatility with large fluctuations over the time period
• What factor increases international competitiveness of exports?

  Increase in international competitiveness of exports
• If £1 = $1.60, what happens to the exchange rate if the pound depreciates?

  It might lower to £1 = $1.40
• How do stronger exports influence currency demand?

  International buyers need the currency to pay
• When did the pound experience a decline in value according to the graph?

  September 2023