英语论文网

Being one of the essential characteristic features of country’s economy, exchange rate determines its level of economic stability while being influenced by money supply and demand. In its essence, exchange rate refers to the price of one currency expressed by certain amount of other currency. In other words, exchange rate of one country’s currency shows how many units of a foreign currency it is necessary to purchase one unit of the given currency. Also, exchange rate determines how much money residents of the country pay for the goods that are being imported and how much money they will get for the goods that are being exported. In case when the value of the currency decreases, people have to pay more for the imported goods, which become more expensive in relation to the value of the currency. In such a situation, a country will have to reduce the amount of the imported goods. On the contrary, foreign countries tend to purchase more of the country’s goods, because they become less expensive, which results in the increase of exports.
For many years economists have been trying to study the nature of the exchange rates in order to find out what factors influence it. However, in 1944 representatives of industrialized countries, who met in Bretton Woods, New Hampshire, decided to “fix the rate of exchange for all foreign currencies to the U.S. dollar” [6] and to tie dollar to the gold in order to have a fixed price of it. At that time, it was considered that fixed exchange rate of the U.S. dollar will provide international stability. However, the system did not work, and indeed, caused a faster pace of inflation in the foreign countries. According to the authors of the book “Exchange Rate Dynamics: A New Open Economy Macroeconomics Perspective”, “Exchange rate determination has been the “holy grail” of international finance and macroeconomics ever since the collapse of the Bretton Woods regime in 1971 and the ensuing period of high exchange rate volatility” [3]. Nowadays, the exchange rate of the majority of world currencies is floating, which means that there is no exact value of any currency that is fixed and it is changing due to the multiple factors. Major factors influencing the exchange rate of any currency is the supply and demand of the given currency at the international exchange markets, which are markets where one currency is traded into another one. Besides supply and demand of currency, other factors also influence its exchange rate, which include: interest rate, inflation, investment, trade balance and others.

No government can control exchange rate of any currency; however, the prices of foreign currencies are established at the FOREX (foreign exchange) market by means of the laws of supply and demand. Price for any currency is determined by the agents’ desire who participate in FOREX to purchase or sell given currency aiming at making profit during such transactions. Fluctuation of exchange rates complies with the laws of supply and demand of money. For example, according to the law of supply, if the price for currency increases, its quantity offered to sell in the market will also increase; on the contrary, if price declines, the quantity offered will decrease. According to the law of demand, if the price for money rises, the demand for it will decline, while it will rise together with the decrease of prices for currency. These two principles determine price fluctuation at the 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。