Exchange Rates - An Introduction
- Levels: GCSE, AS, A Level
- Exam boards: AQA, Edexcel, OCR, IB, Other
An exchange rate is the price of one currency in terms of another – in other words, the purchasing power of one currency against another.
Currencies are traded in foreign exchange markets and the volume of money bought and sold is huge! Daily foreign exchange market turnover averages over $4 trillion
Exchange rates are an important instrument of monetary policy – a growing number of countries are intervening in currency markets as part of their economic strategies
Measuring the exchange rate
Exchange rates are expressed in various ways:
- Spot Exchange Rate - the spot rate is the rate for a currency at today’s market prices
- Forward Exchange Rate - a forward rate involves the delivery of currency at a specified time in the future at an agreed rate. Companies wanting to reduce risks from exchange rate volatility can buy their currency ‘forward’ on the market
- Bi-lateral Exchange Rate - the rate at which one currency can be traded against another. Examples include: $/DM, Sterling/US Dollar, $/YEN or Sterling/Euro
- Effective Exchange Rate Index (EER) - a weighted index of sterling's value against a basket of currencies the weights are based on the importance of trade between the UK and each country.
- Real Exchange Rate - this is the ratio of domestic price indices between two countries. A rise in the real exchange rate implies a worsening of competitiveness for a country
You Might Also Like
12th October 2016
19th July 2016
24th January 2016
21st January 2016
14th December 2015
More From the Digital Store
A full copy of all the teaching & learning resources provided to delegates attending the Achieving A* in A Level Economics course
A comprehensive series of topic-by-topic study notes to support students on Section 1 (Microeconomics) of the IB Diploma in Economics. It covers both the SL and HL content of the IB...
Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.