Supply of dollar
- Comes from U.S citizens, banks, and industries wanting to purchase foreign goods, investments, assets, and to make transfer payments to foreigners.
Demand of dollar
- Comes from foreigners, banks, and industries wanting to purchase our goods, investments, assets, and make transfer payments to us.
- Anytime you have a dollar appreciate= Demand increases and supply goes down
- Dollar depreciates= demand down and supply up
- 5 determinants of supply and demand of the foreign exchange market
- Change in buyers taste
- Change in relative income
- Change in relative prices
- Change in interest rates
- Change in expectations
- Fixed rate exchange Is determined by the government.
- Flexible or floating exchange rate are determined by market forces such as supply or demand, and there is little or no government intervention.
Formulas:
Official reserves= capital account + current account
Capital account = Assets + Debits
Current account = balance of trade + net investment + net transfers
Balance of trade= good and service exports- goods and service imports
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