Question

In: Economics

Which three factors most directly affect the demand for a country’s currency on the international currency...

Which three factors most directly affect the demand for a country’s currency on the international currency market?

1. Central Bank actions to increase or decrease the money supply

2. the demand for the country's goods and services

3. the exchange rate with other currencies

4. strong economic growth

5. the demand for financial assets from that country

Solutions

Expert Solution

1. central bank actions to increase or decrease money supply. suppose fed decides to increase the money supply. LM curve will shift right due to which interest rate will fall. due to this the demand for the currency will increase as the interest rate has fallen. when the price of a good falls its demand increases, interest rate is the price of money demanded. Opposite is true for decrease in money supply.

2. if the demand for the country's goods and services increase, people will need more money or currency to buy stuff. thus they will demand more of this currency and thus its demand will go up.

3. STRONG ECONOMIC GROWTH will tend people to expand their business. it will lead to growth of various industries in the economy people will increase their capital. they will try to invest and thus all of this requires domestic country currency. for businesses to flourish and economy to prosper people will need currency and its demand will go up. economic growth will lead to people demanding more currency

IF ANY DOUBT PLEASE ASK


Related Solutions

Identify 3 factors associated with international trade that affect the demand for a currency (and thus...
Identify 3 factors associated with international trade that affect the demand for a currency (and thus its foreign exchange rate).
Discuss the factors which affect supply and demand of exchange rates.Discuss the factors which affect supply...
Discuss the factors which affect supply and demand of exchange rates.Discuss the factors which affect supply and demand of exchange rates?
: Explain how a country’s balances of payment directly affect the exchange rate.
: Explain how a country’s balances of payment directly affect the exchange rate.
Explain how a depreciation of a country’s currency can affect the economy of the country.
Explain how a depreciation of a country’s currency can affect the economy of the country.
Assume that a war reduces a country’s labor force but does not directly affect its capital...
Assume that a war reduces a country’s labor force but does not directly affect its capital stock. If the economy was in a steady state before the war and the saving rate does not change after the war, then, over time, what can you say about the growth rate of capital per worker and output per worker as compared to before he war?
Specify the three most important independent variables directly affecting the demand for money.
Specify the three most important independent variables directly affecting the demand for money.
Discuss the factors which affect supply and demand of exchange rates?
Discuss the factors which affect supply and demand of exchange rates?
In 300 words or less answer the following: What factors most affect the demand for entertainment?...
In 300 words or less answer the following: What factors most affect the demand for entertainment? Do these factors differ across the entertainment areas of movies, sports, music, broadcast(TV and Radio), gaming and if so, explain how they differ. Have these factors changed over the last decade and if so, how?
1. Everything else held constant , increased demand for a country’s-------- causes the currency to appreciate...
1. Everything else held constant , increased demand for a country’s-------- causes the currency to appreciate in the long run while increased demand for ------- causes its currency to depreciate A. Imports; imports B. imports; exports C. Exports; exports D. Exports; imports 2. The most important short run factor causing exchange rate shifts is A. The level of trade between the countries B. The expected return on assets relative to another country C. The liquidity of assets relative to another...
Write the money demand function and explain what are the factors directly affecting the demand for...
Write the money demand function and explain what are the factors directly affecting the demand for money.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT