Econ Work

A) Distinguish between fixed, floating and

managed exchange rates
A fixed exchange rate is a regime applied by a
government or central bank that ties the
country's official currency exchange rate to
another country's currency or the price of gold.
A floating exchange rate is a regime where the
currency price of a nation is set by the forex
market based on supply and demand relative to
other currencies.
The managed exchanged rate system is
predominantly determined in the foreign
exchange market by supply of and demand for
a currency.
B) Discuss the factors that influences the level
of exchange rate in your country
The factors that influence the level of exchange
rate in your country is:
Differential in inflation
Differential in interest rates
Public debt
Strong economic performance
Current account deficits

C) A country with a high valued domestic

currency:

Advantage- more imports can be bought

Disadvantage-damage to domestic industries
A weaker domestic currency stimulates exports
and makes imports more expensive.

A strong domestic currency hampers exports

and make imports cheaper

The price level will increase

Employment level will increase

D) Explain the factors contributing to the

appreciation or depreciation of your country's
currency

Exchange rates, interest rates and inflation rate

are all interconnected. An increase in interest
rates cause a country's currency to appreciate
as lenders are provided with higher rates and
thereby attracting more foreign capital. This
can cause a rise in the value of a currency and
therefore the exchange rate.