floating exchange rate determination

• What is an exchange rate?

  The price of one currency in another
• If £1 is equal to $1.60, what does this represent?

  The price of £1 in terms of dollars
• How is an exchange rate determined in an economic market?

  By the forces of supply and demand
• What two economic forces determine exchange rates?

  Demand and supply
• On a graph illustrating the pound exchange rate against the dollar, what does the y-axis represent?

  The price of the pound in dollars
• On a graph illustrating the pound exchange rate against the dollar, what does the x-axis represent?

  Quantity of the pound
• What factors are required to work out the exchange rate of pounds and dollars?

  Demand for and supply of the pound
• What does the equilibrium point between demand and supply curves represent in an exchange rate market?

  The exchange rate (price) and quantity
• If the demand and supply curves for the pound intersect where £1 equals $1.60, what is the exchange rate?

  £1 = $1.60
• In the market for pounds, what specifically are the demand and supply curves representing?

  Demand and supply of the pound
• How is the exchange rate determined in the market?

  Where demand and supply intersect