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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.

question

1

Exchange rate changes

Match 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)

a)
b)
c)
d)
Yes, that's correct. Well done. Changes in exports will affect the demand for sterling, while the level of imports will affect supply.No, that's not right. Changes in exports will affect the demand for sterling, while the level of imports will affect supply.Your answer has been saved.
Check your answer

2

Exchange rate changes

Match the following events to the changes they will cause to the demand and supply of sterling.

a)
b)
c)
d)
Yes, that's correct. Well done. Investment flows into the UK will affect demand for sterling, while investment flows out of the UK will affect supply.No, that's not right. Try again. Investment flows into the UK will affect demand for sterling, while investment flows out of the UK will affect supply.Your answer has been saved.
Check your answer