Question

Foreign exchange market and exchange rate determination

Answer 1

Answer:

Determination of an Exchange Rate:-

In a free market the exchange rate between currencies is determined by demand and supply.

Let's assume there are just two currencies, the $ and £, and one factor determining exchange rates, trade in goods and services.

Answer 2

equilibrium foreign exchange rate is the rate at which demand and supply of foreign exchange at equal and a free market situation it is determined by the market for example demand and supply of foreign exchange there is an inverse relation between demand for foreign exchange and exchange rate their the district relationship between supply of foreign exchange and exchange rate due to above reason demand curve downward sloping and slope curve is upward sloping graphically intersections of demand curve and supply the determined the equilibrium of foreign exchange rate