Changes in exchange rate markets

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Changes in exchange rate markets

• Antti Savelainen 63220J
• Dmitry Golenev 83025S
• ...two more to come )

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Nominal and real exchange rates

• Nominal
• Price in foreign currency of one unit of a
  domestic currency
• Real
• Takes price levels into account (only theoretical
  ideal)

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Variables that affect exchange rates

• Demand and supply
• All international business activity creates
  transaction demand for the money
• Inflation rates
• Domestic inflation rise prices and export suffers
• Interest rates
• High interest rates attracts investors and
  creates demand
• Monetary policy
• Devaluation and revaluation
• Expectations of investors
• Hedging amplifies changes

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