Chapter 6 Part 1 - Foreign Exchange Rates
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Chapter 6 Part 1 - Foreign Exchange Rates
Last updated at April 16, 2024 by Teachoo
When Income of Country Increases
People spend more and Purchase more goods
Hence, they purchase imported goods also more
This leads to increase in Import
Due to this, demand for foreign currency exceeds
This leads to depreciation of domestic currency
Hence, Demand for foreign currency exceeds as compared to supply curve
Effect of Income on Exchange Rate If Income Is low Customer spend less (Low purchasing power) They Purchase less Imported Goods Less Demand for Foreign Exchange Decrease in Rate of Foreign Currency Appreciation of Domestic Currency If Income Is High Customer spend more (More Purchasing Power) They Purchase more Imported Goods More Demand for Foreign Exchange Increase in Rate of Foreign Currency Depreciation of Domestic Currency
