• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

With the help of a diagram, explain three factors that would cause a currency to appreciate in value.

Extracts from this document...

Introduction

With the help of a diagram, explain three factors that would cause a currency to appreciate in value. A currency is the system of money that is used in a particular country. For example, India uses rupees and Japan uses Yen. However, in order to know how much a currency is worth in the world�s economy, we need to compare it to another currency. This is known as exchange rate, when the value of one currency is expressed in terns of another. ...read more.

Middle

The figure below shows an example of the japanese Yen and Indian Rupees : When the value of a currency rises, it is known to have appreciated and when it drops, it is known as depreciated. The value of a currency can appreciate due to any of the reasons listed below : 1. Slow growth of income which causes imports to lag behind exports 2. An inflation rate that is lower then the trading partners 3. Domestic real interest rates are higher then the one abroad 4. ...read more.

Conclusion

This can be seen in the diagram below : The advantage of an economys currency to be in a floating exchange rate is that the exchenage rate does not have to be kept at a certain level. The interest rates are free to be employed as a domeytic monetary tools and can be used to demand management policies like controlling inflation. Also, the floating exchange rate will adjust itself to keep the account balanced. For exmaple if the demand for a currency is low because exports are low, then the supply of the currency would be high. The means that the market will adjust itself and the exchange rate will fall. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Heritage Management

    It though earlier that it could do away with independent travel management companies and sell only though its website, however it found that by reducing point of focus BA has reduced its visibility so it decided to reengage with travel management companies (Travel Trade, 2007)

  2. Human Research Management - Southwest Airlines

    Internal flow - evaluation of employees' performances and potentials practiced by SWA bases on analysis of their individual and group work performance results. It also concentrates on the analysis of their behaviour (whether in accordance with job rules, management philosophy and organisational culture).

  1. Coursework: Is Chester Zoo value for money?

    Chester Zoo supports the learning of animals for student by reading, touching and smelling. They want to encourage you to take care for the environment which has never been as important like today. Chester Zoo has great plans for the future.

  2. Discuss the various factors that cause poverty.

    Poor health, due to nutritional discrepancies and limited hygiene further decreases the opportunity for work. Children are often ridded of education such that, not just being too expensive to pay for, but they are required to fend on the crop fields for their families.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work