Using a diagram, explain how an economy's exchange rate is determined. 4 marks. AS Level The National and International Economy
The main part of the explanation will be through the use of the whiteboard during the session.
An economy's exchange rate is determined by the demand and supply of its currency. The point at which the demand curve and supply curve intersect on the diagram represents the equilibrium exchange rate and so the price of the currency and the quantity of the currency; on the vertical and horizontal axes in each case. Both the supply of and demand for the currency determine the exchange rate.
JM
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