exchange rate.ppt

Exchange Rate Definition：exchange rate or rate of exchange means price of one currency in terms of another。It is normally expressed in terms of how many units of the home countrys currency are needed to buy one unit of a foregin currency. Two exchange quotations 1、Direct quote(直接标价法）:the price of one unit foreign currency in terms of domestic currency 2、Indirect quote（间接标价法）:the price of one unit domestic currency in terms of foreign currency The demand curve for foreign exchange If we compare the $A to the $US, the DEMAND for the $US in relation to the $A are individuals or organisations with $A who wish to convert them to $US holders of $A wanting to buy imports valued in $US tourists leaving Australia wanting $US holders of $A wanting to transfer income to USA, eg., Australians investing in the USA, repaying our foreign debt. Foreign businesses in Australia returning profits to the USA. speculators who think the $A will FALL compared to the $US. Demand for foreign exchange If there is more demand for the $US, the demand curve will shift to the right, from d1 to d2. Example: holders of $A wanting to buy imports valued in $US 1US$ = 1 AUS$ 1US$ = 1.25 AUS$. US$ appreciates, AUS$ depreciates. If demand fell the $A would appreciate. The Supply Curve of foreign currency? If we compare the $A to the $US, the Supply of the $US in relation to the $A are individuals or organisations with $US who wish to convert them to $A. holders of $US wanting to buy Australian exports tourists and students coming to Australia wanting $A. holders of $US wanting to transfer income to Australia, eg., foreign investors Australian businesses in the USA returning profits to Australia. speculators who think the $A will rise compared to the $US. Supply of foreign exchange If there is an increase in the supply of $US to be converted to $A, the supply curve will shift to the right from s1 to s2. Example: holders of $US wanting to buy Australian exports $1 US = $1.25AUS $1 US = $1 AUS $US