International Finance Chapter 4

Question	Answer
Demand for a currency	Increases when the value of the currency decreases
Supply of a currency	Increases when the value of the currency increases
Equilibrium	Equates the quantity of a currency demanded and the supply of that currency for sale
Increase in demand or decrease in supply	Exchange rate will increase to the level at which quantity demanded equals quantity supplied in the foreign exchange market
Decrease in demand or increase in supply	Exchange rate will decrease to the level at which quantity demanded equals quantity supplied in the foreign exchange market
Relative inflation rates	Increase in inflation leads to increase in exchange rate for foreign currency
Relative interest rates	Increase in interest rates leads to increase in exchange rate for USD
Real interest rate (fisher effect)	Real interest rate = nominal interest rate - inflation rate
Relative income levels	Increase in US income leads to increase in exchange rate for foreign currency
Interaction of factors	Some factors place upward pressure while some place downward pressure
Influence of factors across multiple currency markets	It is common for European currencies to move in the same direction against the dollar
Influence of liquidity on exchange rate adjustment	When a currency's spot market is liquid its FX will not be highly sensitive to a single large purchase or sale

Resource summary

	Created by Kyle Olson about 8 years ago