ECO102H1 Lecture Notes - Lecture 23: Devaluation, Foreign Exchange Market, Capital Account
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ECO102H1 Full Course Notes
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If the exchange rate rises, foreign currency becomes more expensive (quantity demanded decreases: an increase in the exchange rate is a depreciation of the canadian dollar. If the exchange rate falls, foreign currency becomes less expensive (quantity demanded increases: a decrease in the exchange rate is an appreciation of the canadian dollar. Any change in demand or supply will alter the equilibrium exchange rate. An increase in the supply of us dollars will cause the value of the exchange rate to fall (the. An increase in the demand for us dollars will cause the value of the exchange rate to rise (the. Shifts of the supply/demand of foreign currency are caused by: inflation. If there is equal inflation in the us, no changes to equilibrium exchange rate. If pcanada > pus, exports decrease and imports increase: when exports decreases, supply of usd decreases, when imports increase, demand for usd increases, canadian dollar will be depreciating.