Australian_Idol
Member
- Joined
- Mar 26, 2004
- Messages
- 82
I don't know if this is right.
I typed it in my essay and i just want to make sure it's correct.
I get confused with the exchange rate and equilibrium value.
Under the floating exchange system, the value of Australias currency is determined by the forces of demand and supply in the foreign exchange market, which determine an equilibrium value for the currency. The equilibrium value will change continuously as demand and supply forces change. The determination of the exchange rate under a floating system is demonstrated in Figure 1, which shows how the exchange rate for $A in terms of $US is established. The demand curve DD shows the quantity of $A that buyers are willing to purchase at each exchange rate. The demand curve is negatively sloped because as the exchange rate falls the $A is cheaper relative to the $US, so more $A are demanded. The supply curve shows the quantity of $A that suppliers are willing to sell at each exchange rate. The supply curve is positively sloped since any rise in the exchange rate means that $US becomes cheaper relative to $A, so more people want to sell $A and purchase $US. The intersection of the demand and supply curves determines the equilibrium exchange rate and in this case it is $A1.00 = $US0.60. This means that the value of the $A in terms of $US is $US0.60. This is the equilibrium value, the value at which the quantity of $A supplied equals the quantity of $A demanded. As indicated in Figure 1, the equilibrium quantity is $A165 billion.
Please help
I typed it in my essay and i just want to make sure it's correct.
I get confused with the exchange rate and equilibrium value.
Under the floating exchange system, the value of Australias currency is determined by the forces of demand and supply in the foreign exchange market, which determine an equilibrium value for the currency. The equilibrium value will change continuously as demand and supply forces change. The determination of the exchange rate under a floating system is demonstrated in Figure 1, which shows how the exchange rate for $A in terms of $US is established. The demand curve DD shows the quantity of $A that buyers are willing to purchase at each exchange rate. The demand curve is negatively sloped because as the exchange rate falls the $A is cheaper relative to the $US, so more $A are demanded. The supply curve shows the quantity of $A that suppliers are willing to sell at each exchange rate. The supply curve is positively sloped since any rise in the exchange rate means that $US becomes cheaper relative to $A, so more people want to sell $A and purchase $US. The intersection of the demand and supply curves determines the equilibrium exchange rate and in this case it is $A1.00 = $US0.60. This means that the value of the $A in terms of $US is $US0.60. This is the equilibrium value, the value at which the quantity of $A supplied equals the quantity of $A demanded. As indicated in Figure 1, the equilibrium quantity is $A165 billion.
Please help
