Forex Market
5 important questions on Forex Market
Which two kinds of exchange rate transactions make up the foreign exchange market?
If currency of your country appreciates ...
- Makes domestic businesses less competitive
- Benefits domestic consumers
How is FX trade in OTC market?
- Buying and selling bank deposits denominated in different currencies
- Trades have amount > 1 million
- Buy foreign currencies from retail dealers
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Factors Affecting Exchange Rates in LR
- Price levels: rise in relative prece level -> currency depreciates
- Tariffs and quotas: increasing trade barriers -> currency appreciates
- Preferences for domestic vs. foreign goods:
- increased demand for country's good -> currency appreciates
- increased demand for imports -> currence depreciates
- Productivity: country is relatively more productive -> currency appreciates
Domestic currency and real interest rate and expected inflation
- Increase in domestic real interest rate -> domestic currency appreciates
- Increase in domestic expected inflation -> domestic currency depreciates
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