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Exchange rate appreciation

Syllabus: Explain the factors that lead to changes in currency demand and supply, including
  • foreign demand for a country’s exports, (PoPzYTEP - USA demand in market for Reais)
  • domestic demand for imports, (PoPzYTEP - Brazilian Supply in market for Reais)
  • relative interest rates, (where would foreigners want to save? Where interest rates are higher)
  • relative inflation rates, (higher inflation in Brazil implies less demand for Reais - Po in PoPzYTEP)
  • investment from overseas in a country’s firms (foreign direct investment eg Building a Factory and portfolio investment eg buying bonds and shares - Warren Buffet) and
  • speculation. (buying a currency expecting the currency to appreciate and selling for a profit - George Soros)

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