This website uses cookies to ensure you have the best experience. Learn more

What Might Cause An Appreciation Of A Floating Exchange Rate?

1775 words - 7 pages

What might cause an appreciation of a floating exchange rate?
Discuss whether an appreciation of a country's exchange rate will
always be beneficial to that country.

a) what might cause an appreciation of a floating exchange rate?

b) Discuss whether an appreciation of a country's exchange rate will
always be beneficial to that country. (15)

A free, fluctuating or floating exchange rate means the existence of a
free or competitive foreign exchange market where the price of one
currency in terms of another is determined by the forces of supply and
demand operating without any official interference.

A rise in the price of a currency in terms of another currency is
called an appreciation.

The following figure shows the equilibrium price of pounds in terms of
U.S dollars.

Short and long-term movements in the exchange rate, like any price,
are caused by changes in market demand and supply conditions. The
appreciation of a country's currency will occur due to either an
increase in demand or fall in supply of that currency.

The demand for sterling (pounds) in the FOREX markets comes from many

UK goods and services are exported overseas - . if there is an
increase in exports this will create an inflow of currency into to the
UK which needs to be turned into sterling this will increase demand
for the sterling . When US consumers but British Whisky they supply
dollars and this is eventually translated into a demand for pounds.
This will cause an outward shift in the demand curve for sterling,
thus causing the currency to appreciate.

Foreign long term investment flows into the UK economy will again
increase the demand for the sterling for example, Pakistani investment
in a car plant in the UK will raise the demand for pounds causing an
outward shift of the demand curve. This will again cause the pound to

Interest rates have a large effect in a world where financial capital
can move freely between countries. An appreciation of the pound
sterling will occur when there are "hot money inflows". When a
country's interest rates are high relative to elsewhere this attracts
inflows of money into a country seeking to take advantage of the high
interest rates.When the interest rates of a country rise, savers
abroad may shift their saving funds from foreign banks to UK
banks.This "interest differential" boosts the demand for the currency
and can cause its value to rise. This is likely to be short term, as
savers will switch to different financial centers in search of the
highest interest rates in the world. This hot money inflow will be an
inflow increase in the capital account of the balance of payments.
This will increase the demand for the sterling shifting the demand
curve outwards and appreciating the pound.

Mere speculation can cause...

Find Another Essay On What might cause an appreciation of a floating exchange rate?

Political Economy of Yuan-Dollar Exchange rate

2266 words - 9 pages , 2005). Hausmann, Lim, and Spence (2006) share the view that an appreciation of the yuan would help to reduce China's trade surplus and to promote a more balanced development for the domestic economy.   Blanchard and Giavazzi (2006) advocate to remove capital controls and allow capital outflow to reduce the pressure on the exchange rate. They also argue that a persistent trade surplus is not good for the Chinese economy, and China for its own

Currency and Interest Rate Swap: A Case Study of the Australian Foreign Exchange Market

3038 words - 12 pages out the interest rate and currency swapsTo analyze and critically evaluate the currency swapping in a forex marketResearch QuestionsBased on the objectives of this study research queries will include the following:Does interest rate and currency swaps play a key function in attaining organizations goals or objectives?What are the different ways of interest rate and currency used in the fore market?The importance of using the currency swaps in an

Investigating the rate of electrolysis. An investigation to find out what factors affect the rate of electrolysis of a solution containing copper (II) ions

2805 words - 11 pages Investigating the rate of electrolysis.An investigation to find out what factors affect the rate of electrolysis of a solution containing copper (II) ions.PlanIt is known that by passing a constant electric current through a copper sulphate solution the passage of ions through this solution results in copper atoms being dissolved into the solution from the anode, which has a positive charge while positive copper, ions (cations) are also being

Arthur Miller's Death of a Salesman (lens - in literature an author might reveal more about what is bad in the human soul than what is good)

724 words - 3 pages Often times in literature an author might reveal more about what is bad in the human soul, than what is good about the human soul. This can often be a necessity in order for the specific message of a literary work to be conveyed in an accurate manner. One literary work, that could further exemplify this statement is a drama known as Death of a Salesman by Arthur miller. In this fine example of a classic American tradgedy, we get the opportunity

Reducing Stereotype Threat: A Cause of the Mass Incarceration Rate of African Americans

2425 words - 10 pages . but that might damage the situation more than it would help. The ineffectiveness of informing the public is explained simply by Mike Wallace’s interview with Morgan Freeman on “60 Minutes.” When he asked Morgan Freeman what we should do to get rid of racism, Freeman responded by saying, “Stop talking about it. I’m going to stop calling you a white man. And I’m going to ask you to stop calling me a black man.” His answer was completely

A critical appreciation of an extract from Dracula, end of chapter 12 - Dracula - essay

1125 words - 5 pages A Critical Appreciation of An Extract From Dracula, End of Chapter 12 In this extract from Chapter 12 in ‘Dracula’ by Bram Stoker, Seward depicts the moments leading up to Lucy’s death. Stoker uses many gothic conventions and literary devices to build a sense of pathos and fear in this extract, and in turn, leave the reader in suspense at the end of the chapter. The strong sexual intensity between Arthur and Lucy is important as it contradicts

A critical appreciation of an extract from Oscar Wilde’s The Picture of Dorian Gray

1216 words - 5 pages have adopted is later contradicted where he sinisterly mentions the “sordid shame” that he feels towards the “great city.” This could either emphasise how bitterly he feels towards the way that the “great city” has assisted in his destruction or the flowing rhythm of the sibilance could reflect his peace as he lays back. Although to an extent this “listless” manner creates a threatening atmosphere as it contrasts with the grotesque imagery of the

Analysis of Fiscal, Monetary, and Exchange Rate Articles

1195 words - 5 pages U.S. dollar. The US dollar ($) is the official currency of the United States and its overseas territories. Just like the euro there are other currencies pegged to it, such as the Bermudian Dollar. The US dollar is the fiat currency most used in international transactions and is one of the world’s most dominant reserve currencies. After the 2008 market crash the exchange rate between the US Dollar and the Euro has been increasing. While the

In what ways does a comparative study of the intertextual connections between Mrs Dalloway and The Hours enhance an audience’s appreciation of the distinctive values and context? - Year 12 - Advanced...

1867 words - 8 pages Laura’s face, who seems stunned by her action, suggests that like Clarissa Dalloway, this kiss was an ‘exquisite’ moment in Laura’s mundane life. However, Kitty’s dismissal of the kiss, being the epitome of a 1950s wife that her façade emanates, “You didn’t mind?” “What?” exemplifies the 1950s perspective on homosexuality has not changed much since that of the 1920s. The 1950s society’s rejection of the kiss is further symbolized through Richie’s

What is Organizational Culture? Explain both how the culture of an organization might evolve and why an understanding of the organizational culture is important

1613 words - 6 pages culture as a broad form of culture, which comprises of a set of values, beliefs, behaviours, customs, and attitudes that help the members of the organization understand what it stands for, how it does things, and what it considers important. If we go back to our earlier interpretation of culture, the understanding is very much similar, but now it is applied to an organization instead of to a certain group of race or people. Broadly speaking, the

Analyze the Determinants of the GBP Nominal Exchange Rate and Its Future Prospective

1320 words - 5 pages , this survey also reveals that the price sterling to dollar has risen steadily between1.45 and 1.55 since last month. So, what causes the fluctuation of the GBP nominal exchange rate has provoked a heated discussion. The purpose of this essay is to explore the determinants of sterling nominal exchange rate and forecast its future trend. Firstly, it will give definition of nominal exchange rate compared to real exchange rate. Secondly, three factors

Similar Essays

Should Australia Return To A Fixed Exchange Rate, Rather Than A Floating Currency Exchange System? (Oral Presentation)

524 words - 2 pages Since the inception of a floating currency exchange rate system, the Australian dollar has declined by over 30% and as a result many economist have warranted the return of the fixed exchange rate. But is it really worth it?To see which system suits Australia best, we need to understand what the difference is between these two methods.So what is a floating exchange rate system? Do you know...A free floating exchange rate is one where the value of

An Appreciation Of Death Of A Naturalist

595 words - 2 pages ?Death of a naturalist? is a poem about growing up and loss of innocence. The poem is organised into two sections, which follows the boy through childhood. The boy becomes a reflective Adult, from an unquestioning boy. It seems Seamus Heaney is concerned with the progression from innocence to experience. This is shown in the first paragraph when he talks like a child: ?Miss Walls would tell us how.? This shows the fact that the child is in

A Short History Of The Worlds Exchange Rate Systems

2898 words - 12 pages to its gold or silver content. Therefore the exchange rate became the ratio of gold between two currencies. 'Vanilla' Gold Standard: The words 'Gold Standard' are often used in common parlance to describing best practice, but what exactly is a Gold Standard monetary system? Essentially it is a commitment from participating nations, and by proxy their central banks, to buy and sell an unlimited amount of gold at a fixed rate (Bordo, 1981). It

Theories Of Exchange Rate Determination Essay

906 words - 4 pages appreciation of the exchange rate. Additionally, he also claimed that the monetary policy shock temporarily lowers output while increasing unemployment and has a negative effect on consumer price inflation. Besides that, Kearns and Manners (2006) find that monetary policy shock will increases the interest rate has a significant appreciating effect on the exchange rate. Thus, an increase in interest rate may have prevented the exchange rate from falling even further.