Exchange Rates and Balance of Payments
,Exchange Rates (ER)
The rate of which one currency is exchanged for
another
Flexible ER
Appreciation and depreciation
Fixed ER
Devalue and Revalue
,Purchasing Power Parity
Theory suggests that in the long run, ER will adjust so
as to equate the purchasing power of each country’s
currency
, Flexible ER
ER determined by market forces of supply and demand
,Exchange Rates (ER)
The rate of which one currency is exchanged for
another
Flexible ER
Appreciation and depreciation
Fixed ER
Devalue and Revalue
,Purchasing Power Parity
Theory suggests that in the long run, ER will adjust so
as to equate the purchasing power of each country’s
currency
, Flexible ER
ER determined by market forces of supply and demand
