ECO105Y1 Lecture Notes - Lecture 21: Aggregate Demand, Canadian Dollar, Interest Rate Parity
Document Summary
Exchange rate: is the price at which one currency exchanges for another. Every currency has more than one exchange rate. Foreign exchange market: a worldwide market for buying and selling currencies. The exchange rate, the price of a canadian dollar in us dollars, is on the vertical axis. A fall in the exchange rate is called a currency depreciation. A rise in the exchange rate is called a currency appreciation. Two main reasons why non-canadians demand canadian dollars on the. To speculate on the future value of the canadian dollar. As the exchange rate rises, the quantity demanded of canadian dollars decreases. In the unique world of the foreign exchange market, the demand for one currency is the supply of another. As the exchange rate rises, the quantity supplied of canadian dollars increases. A rise in the exchange rare increases the quantity supplied of canadian dollars in the foreign exchange market.
