FOREIGN EXCHANGE RATE

R

FOREIGN EXCHANGE

DOMESTIC EXCHANGE

FIXED EXCHANGE RATE

FLOATING EXCHANGE RATE

EQULIBIRIUM EXCHANGE RATE

CURRENCY DEPRICIATION

CURRENCY APPRICIATION

CURRENCY DEVAUATUON

CURRENCY REVALUATION

FOREIGN EXCHANGE MARKET

DEMAND FOR FOREIGN CURRENCY

SUPPLY FOR FOREIGN CURRECY

�FOREIGN EXCHANGE:��FOREIGN EXCHANGE IS THE EXCHANGE OF ONE CURRENCY INTO ANOTHER �OR�THE CONVERSION OF ONE� CURRENCY INTO ANOTHER CURRENCY. �FOR EG :1 ($) =70 RS �

DOMESTIC EXCHANGE:� �EXCHANGE BETWEEN TWO PLACES WITHIN THE COUNTRY OR DRAFT OR ORDER FOR MONEY DRAWN AT PLACE AND PAYABLE TO OTHER IN SAME COUNTRY.

FOREIGN EXCHANGE RATE:��THE RATE AT WHICH CURRENCY OF ONE COUNTRY IS EXCHANGE WITH OTHERS.�ONE $ = 69 RS.

��IT HAS TWO TYPES:�1. FIXED EXCHANGE RATE SYSTEM.�2. FLEXIBLE EXCHANGE RATE SYSTEM.�

FIXED EXCHANGE RATE SYSTEM����1.GOLD STANDARD SYSTEM �OF EXCHANGE RATE�� 2 .THE BRETON WOOD SYSTEM

GOLD STANDARD SYSTEM OF EXCHANGE RATE :�THE SYSTEM OF EXCHANGE RATE IN WHICH EXCHANGE RATE IS DETERMINED BY GOVERNMENT IN TERMS OF GOLD.�

��GOLD STANDARD SYSTEM OF EXCHANGE RATE:���IN THIS RATE OF EXCHANGE IS DETERMINED IN GOLD?��1£= 4 GRAM OF GOLD�1$= 2 GRAM OF GOLD�2$= 1£���

����ADJUSTABLE PEG RATE SYSTEM �OF EXCHANGE RATE :������

FLEXIBLE EXCHANGE RATE SYSTEM:��UNDER THIS SYSTEM RATE OF EXCHANGE IS DETERMINE BY THE MARKET FORCES�.�MARKET FORCES : IT MEANS ACCORDING TO MARKET DEMAND AND MARKET SUPPLY.

��R= F(D,S)�� �“AS MARKET DEMAND OF CURRENCY MORE THAN MARKET SUPPLY THEN THE RATE OF EXCHANGE INCREASES AND VICE VERSA.”��

EQUILIBRIUM RATE: THE RATE AT WHICH MARKET DEMAND OF CURRENCY IS EQUAL TO MARKET SUPPLY.���

QUES: WHAT HAPPEN TO EQUILIBRIUM EXCHANGE RATE IF MARKET DEMAND INCREASES?������

���CURRENCY DEPRECIATION:�IT IS DEFINED AS DECREASE IN THE VALUE OF DOMESTIC CURRENCY AGAINST FOREIGN CURRENCY. �FOR EXAMPLE: PER PEN PRICE IS 10 RS.�1$= 50 RUPEES. (5 PENS)�1$= 70 RUPEES (7 PENS)�EXPORT INCREASES IMPORT DECREASES DUE TO INFLATION.����

���CURRENCY APPRECIATION:�IT IS DEFINED AS INCREASE IN VALUE OF DOMESTIC CURRENCY AGAINST FOREIGN CURRENCY. �FOR EXAMPLE: �1$= 50 RUPEES. (5 PENS)�1$= 30 RUPEES. (3 PENS)�EXPORT DECREASES THEN IMPORT INCREASES DUE TO DEFLATION.� �

��IT IS DEFINED AS INCREASE IN THE VALUE OF DOMESTIC CURRENCY BY THE GOVERNMENT IS CURRENCY REVALUATION � �WHEN EXCHANGE RATE IS DETERMINED BY THE GOVERNMENT IS UNFAVORABLE FOR THE DOMESTIC CURRENCY.�

�IT IS DEFINED AS DECREASE IN VALUE �DOMESTIC CURRENCY BY THE GOVERNMENT IS KNOWN AS CURRENCY DEVALUATION .IN THIS INTERFERE BY THE�“GOVERNMENT”.�

��FOREIGN EXCHANGE MARKET:��IT IS THE PLACE FROM WHERE WE PURCHASE OR SALE ANY CURRENCY OF ANY COUNTRY. IT IS MARKET FOR CURRENCY OF ALL THE WORLD.�FOR EG THIS IS DONE IN BY THE RBI IN THE INDIA ��

MANAGED FLOATING EXCHANGE RATE SYSTEM:��WHEN RATE OF EXCHANGE IS DETERMINED BY MARKET FORCES AND IF THE RATE IS NOT FAVORABLE FOR THE COUNTRY THEN RBI INTERFERE TO MAKE OF EXCHANGE FAVORABLE FOR THE COUNTRY.��

FOR EXAMPLE:��1$= 60 RUPEES.�1$= 55 RUPEES.��RBI INCREASES THE SUPPLY OF DOLLAR IN COUNTRY.�1$= 60 RUPEES.�1$= 70 RUPEES.�RBI INCREASES DEMAND OF DOLLAR IN COUNTRY�

DIRTY FLOATING:�� IF RBI MAKE HUGE CHANGE I.E DOES NOT FOLLOW RULES AND REGULATIONS TO GOVERNMENT EXCHANGE RATE SYSTEM IT IS KNOWN AS DIRTY FLOATING.�