determination of exchange rates n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Determination of exchange rates PowerPoint Presentation
Download Presentation
Determination of exchange rates

play fullscreen
1 / 14

Determination of exchange rates

246 Views Download Presentation
Download Presentation

Determination of exchange rates

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Determination of exchange rates 3 major approaches

  2. Factors affecting exchange rates • Current supply and demand flows in the foreign exchange market • Current events

  3. Expectations about future exchange rate movements

  4. Central Bank behaviour • Price stability • Low interest rate • Target currency value

  5. Why do exchange rates move? • Effects over time of • Capital flows

  6. Why do exchange rates move? An understanding of how long-term economic fundamentals interrelate with short-term political or other factors is essential to understanding boyh why exchange rates move and the rationale behind the forecasts made by economists

  7. Exchange rate of a freely floating currency Viewed as having 2 constituents: • Economic performance( the currency in relation to other currencies)

  8. Predictability of a currency vis-a vis other currencies • Short-term shocks are difficult both to predict and to quantify in terms of their likely impact on the exchange rates.

  9. Predictability of a currency vis-a vis other currencies Other short-term factors that influence exchange rates temporarily can be: • Banks open position/reserve requirements

  10. Effect of capital flows

  11. Balance of payments • Current account balances • Portfolio investments • Foreign direct investment

  12. Parity conditions

  13. Asset approach • Relative interest rate • Prospects foe economic growth • Supply and demand for assets • Outlook for political stability • Speculation and liquidity

  14. Factors influencing spot and forward rates