BUS 1104 WA Unit 4 PDF

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In a 2-page paper, address the following: Recall that an exchange rate is the price of one curren$1 to buy 1 British Pound. Also recall the interest rates affect exchange rates. What do you cy in another. For example, it may take US predict will happen to the foreign exchange rate if than in the UK?...

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In a 2-page paper, address the following: Recall that an exchange rate is the price of one currency in another. For example, it may take US $1.35 to buy 1 British Pound. Also recall the interest rates affect exchange rates. What do you predict will happen to the foreign exchange rate if interest rates in the United States increase more than in the UK? (In other words, which currency will become stronger?) How would such a change affect US exports to the UK? Would it be less expensive for an American tourist to take a vacation to London after the interest rate change? Be sure to clearly explain and justify your reasoning. Ensure you have presented your assignment in a logical format, that has an introduction paragraph, the body (one or more paragraphs), and a concluding paragraph. Also, ensure that you have the appropriate formatting to avoid plagiarism and the appropriate grammar (this may be achieved by using free tools available on the Internet). The following criteria will be used to grade the papers:    

Realistically and thoroughly explains what might happen to the foreign exchange rate. Makes realistic predictions about what might happen to US exports and explains why. Realistically predicts what might happen to the price of a London vacation and explains why. Organization and style of the essay.

Written Assignment unit 4 University of the People Bus 1104 Macroeconomics 24 February 2021 An exchange rate is the price of one currency in relation to another currency. Exchange rates are primarily governed by the demand for a country's currency and are determined in the foreign exchange market. All currencies have an exchange rate against each other. The exchange rate for the US dollar stated in British is stated as pounds/ USD, which shows how many British pounds are to be paid for one US dollar. A country with high growth often sees the value of its currency. This is because foreign players becoming more interested in investing in the country must lead to the country's financial balance being positive. When the capital inflow is greater than the capital that flows out of the country, the demand for the country's currency increases, the stronger the currency With regards to the question of what might happen to the foreign exchange rate: Changes in interest rates affect the value of the currency and its relationship to the dollar, pounds and other currencies, High interest rates increase the currency. In this case the U.S dollar will become more stronger than the British pounds considering the fact that the interest rate in the united states is increased more than the U.K pounds which means more pounds would be required to purchase one 1 dollar. When the interest rate is higher, the net exports would be lower thus the increase in exchange rate make U.S goods and services less attractive to foreigners in that case the net export would decrease.

Interest rates, inflation and exchange rates are all highly correlated. By intervening and manipulating interest rates, central banks affect both inflation and exchange rates. Changes in interest rates affect inflation and currency values. Higher interest rates give lenders in an economy a higher return compared to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise. However, the effect of higher interest rates is mitigated if inflation in the country is much higher than in others, or if additional factors serve to reduce the currency. The opposite is true for lowering interest rates - that is, lower interest rates tend to lower exchange rates. The value of a country's exports and imports of goods and services is called the current account. It is not the current account balance itself that affects the exchange rate, but the changes in the current account. Decreasing exports may mean that the currency may weaken in the future, and vice versa. A higher value of the US dollar in this case makes its imports cheaper and exports more expensive in foreign markets. A lower valued currency makes a country's imports more expensive and exports cheaper in foreign markets. A higher exchange rate can thus be expected to worsen a country's trade balance, while a lower exchange rate can improve it. Determining what is the best value for a currency is thus not easy, but something that central bank governors and economists around the world think about on a daily basis. There are many factors that determine exchange rates. Many of these factors are related to the trade relationship between the two countries like the US and UK. Remember that exchange rates are relative and are expressed as a comparison of the currencies of two countries. Considering what might happen to the price of the London vacation. I think the fact that the U.S exchange rate is higher when compared to the pounds this implies that an American tourist in London would find it cheaper due to the fact that the U.S dollar is higher than the UK pounds.

Since the goods and services would be cheaper in London for American tourists this would increase the quantity demanded of goods and services in London. A country's foreign trade, economic growth (GDP) and central bank interventions also have an impact on the exchange rate. A country with high growth often sees the value of its currency. This is because foreign players becoming more interested in investing in the country must lead to the country's financial balance being positive. When the capital inflow is greater than the capital that flows out of the country, the demand for the country's currency increases, the stronger the currency. As in all other areas, knowledge is something that is usually rewarded in the foreign exchange market. An important knowledge is to know what makes the exchange rates move up or down. Apart from factors such as interest rates and inflation, the exchange rate is one of the most important measures of a country's relative economic health. Your foreign exchange trading is also affected by the balance of payments for different countries, the central government debt, the trade balance and many other factors that we go through below. Exchange rates play an important role in a country's trading level, which is crucial for most free market economies in the world. For this reason, exchange rates are among the most monitored, analyzed and statemanipulated economic measures. Exchange rates also play a role on a smaller scale. Live exchange rates affect an investor's portfolio's real return in real time, every second. In this article, we look at some of the major forces behind exchange rate changes.

References: Rittenberg, L. and Tregarthen, T. (2012). Macroeconomics Principles V. 2.0. Licensed under Creative Commons by-nc-sa 3.0 (https://creativecommons.org/licenses/by-nc-sa/3.0...