Explain what is meant by an equilibrium exchange rate.
The equilibrium exchange rate is commonly defined as the currency rate of exchange where both the currencies being supplied is equal to the demand for it (Economics Online, 2014). According to Glossary of Statistical term (2002), the equilibrium exchange rate that is equal to currency’s purchasing power parity. It is determined differently using different monetary standards. The equilibrium exchange rate can be stable in addition to being perpetual for a long period. It is also important to know that this rate affects business profit, the inflation rate and production of both goods and services (Kidwell et al., 2013). The Equilibrium exchange rate can be affected with the following …show more content…
This demand is associated with both trade and financial flows. Consequently, this led to the exchange rate’s appreciation. The appreciation of AUD has also made the exports to be more expensive. Hence, the Australian exports are no longer in demand as they used to be.
Describe sources of EXCHANGE RATE fluctuation in Canada The appreciation of Canadian dollar has been encouraged by several factors such as the decline in the US Dollar, global economy together with commodity prices. Furthermore, the magnitude of the increased exchange rate has become greater as compared to the most recent movements in these factors even though these are the key factor in determining the fluctuation in Canada (Holden, 2007). Since 2002, in relation to declining in the value of US dollar, it is important to know that Canadian dollar is not only the currency that appreciated against the USD. There are also currencies that have appreciated rapidly as compared to the Canadian dollar. One of the currency is euro that raised by almost 61.4% just at the same period when other currencies were appreciating. The diagram (Figure 1) below shows how other world currencies were appreciating against the US
The equilibrium exchange rate is commonly defined as the currency rate of exchange where both the currencies being supplied is equal to the demand for it (Economics Online, 2014). According to Glossary of Statistical term (2002), the equilibrium exchange rate that is equal to currency’s purchasing power parity. It is determined differently using different monetary standards. The equilibrium exchange rate can be stable in addition to being perpetual for a long period. It is also important to know that this rate affects business profit, the inflation rate and production of both goods and services (Kidwell et al., 2013). The Equilibrium exchange rate can be affected with the following …show more content…
This demand is associated with both trade and financial flows. Consequently, this led to the exchange rate’s appreciation. The appreciation of AUD has also made the exports to be more expensive. Hence, the Australian exports are no longer in demand as they used to be.
Describe sources of EXCHANGE RATE fluctuation in Canada The appreciation of Canadian dollar has been encouraged by several factors such as the decline in the US Dollar, global economy together with commodity prices. Furthermore, the magnitude of the increased exchange rate has become greater as compared to the most recent movements in these factors even though these are the key factor in determining the fluctuation in Canada (Holden, 2007). Since 2002, in relation to declining in the value of US dollar, it is important to know that Canadian dollar is not only the currency that appreciated against the USD. There are also currencies that have appreciated rapidly as compared to the Canadian dollar. One of the currency is euro that raised by almost 61.4% just at the same period when other currencies were appreciating. The diagram (Figure 1) below shows how other world currencies were appreciating against the US