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Exchange Rates

Global Economic Issues
Assignment
Exchange Rates
Question 1
Explain why the exchange rate is such an important ‘price' in terms of the impact it can have on a country's economic system.

The exchange rate is an important ‘price' in terms of the impact it can have on a country's economic system. It can have an affect or be affected by many parties. Some for example, unemployment, inflation, growth and the trade balance between imports and exports. Since a currency's price depends on the aggregate demand and supply of it, the exchange rate affects exports and imports. Whereas a strong currency lowers the price of imports, the price of exporting goods and services rises. Conversely, lowers a weak currency the price of exports but increases the costs of imports.
For example, supposing a holiday to France costs 300 Euros, a British person would be more likely to go when the exchange rate was 2.00 Euros per Pound as if it was 1.50 Euros per Pound.
This shows that the stronger......


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Approximate Word Count: 1436
Approximate Pages: 6 (250 words per double-spaced page)

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