Key Points
Key Points: Determination of Equilibrium Rate of Exchange
- Fixed Exchange Rate: Determined by the government/central bank, earlier based on gold content of currencies.
- Flexible Exchange Rate: Determined by demand and supply of foreign exchange in the market.
- Demand for foreign exchange comes from imports, foreign payments, loans, etc. (inverse relation with exchange rate).
- Supply of foreign exchange comes from exports and foreign capital (direct relation with exchange rate).
- Equilibrium rate is where demand equals supply of foreign exchange.
Concepts [13]
- Organisation of the Foreign Exchange Market
- Functions of Foreign Exchange Market
- Features and Characteristic of Foreign Exchange Market
- Participants in Foreign Exchange Market
- Operations/ Transactions in Foreign Exchange Market
- Factors Affecting / Influencing Exchange Rate
- Determination of Equilibrium Rate of Exchange
- Purchasing Power Parity Theory
- Spot Rate
- Arbitrage
- Foreign Exchange Rate Management in India
- Role of Central Bank in Foreign Exchange Rate Management
- Managed Flexible Exchange Rate System of India
