DragIT - Exchange rate determination (2)
In a free foreign exchange market, the rate of exchange is determined by demand and supply. This is illustrated in the following diagrams, which show the demand and supply of pounds against the US dollar.
In the first diagram, you can drag the supply curve to see the impact of changes in supply, while in the second you can drag the demand curve.
NB For the sake of example, we have used the demand for and supply of sterling - the UK currency.
1 |
Exchange rate changesMatch the following events to the relevant shifts in the curves. (N.B. Bear in mind that we are looking at changes to the UK currency - sterling) |
2 |
Exchange rate changesMatch the following events to the changes they will cause to the demand and supply of sterling. |