What might cause an appreciation of a floating exchange rate? Essay

What might drive an tasting of a floating re-sentencing rate? Discuss whether an appreciation of a countrys put back rate will always be adept to that country.a) what might cause an appreciation of a floating exchange rate?b) Discuss whether an appreciation of a countrys exchange rate will always be beneficial to that country. (15)A free, fluctuating or floating exchange rate bureau the existence of afree or competitive foreign exchange market where the wrong of one cash in terms of another(prenominal) is determined by the forces of publish and contain operating without any official interference.======================================================================A rise in the price of a currency in terms of another currency iscalled an appreciation.=================================================================The following figure shows the equilibrium price of pounds in terms ofU.S dollars.Short and vast-term movements in the exchange rate, manage any price,are cause d by changes in market demand and bestow conditions. Theappreciation of a countrys currency will occur due to either anincrease in demand or fall in supply of that currency.The demand for sterling (pounds) in the FOREX markets comes from manysourcesUK goods and services are exported overseas - . if there is anincrease in exports this will create an inflow of currency into to theUK which needs to be turned into sterling this will increase demandfor the sterling . When US consumers but British Whisky they supplydollars and this is ultimately translated into a demand for pounds.This will cause an outer shift in the demand curve for sterling,thus causing the currency to appreciate.Foreign long te... ...viously cause a serious fall in livingstandards. telephone exchange rate and inflationAn appreciation of the exchange rate helps to control speak to and priceinflation in the economy.A fall in result prices means that it is cheaper to import rawmaterials, components, finished manu factured products leading to anoutward shift in Short Run Aggregate Supply shown in diagram - thishas a direct impact on the Retail hurt IndexTougher for domestic companies to compete with cheaper imports - lowerprofit margins as businesses contract to adjust (less pricing power in their markets)Slower growth of exports (leading to a slowdown in aggregate demand -possibly the emergence of a negative output gap where actual GDP A larger trade deficit represents a net outflow of demand from the aeronaut flow of income and spending - leading to less demand-pull inflation.