ECO 372 Week 5 DQ1 foreign exchange

Explain how foreign exchange rates are determined. How do changes in interest rates, inflation, productivity, and income affect exchange rates? What are the advantages and disadvantages of a weak versus a strong dollar for imports, exports, international and domestic markets?

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The exchange rate is determined in what is called the forex market. “Traders buy and sell currencies, taking orders from banks, which in turn take orders for currencies from individuals and companies that want to exchange one currency for another” (Colander, 2010, pg. 480).Interest rates; people who invest their savings in assets that will yield the highest return, an increase in the United States, interest rates have a relations to those oversea will raise demand for United States assets.

Income; demand for imports rely on the earnings in a country. When the nation fails, demand for imports decrease. While foreign currency to purchase imports falls, indicates that the supply for

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