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

What might clear an hold of a floating deputize rate? Discuss whether an appreciation of a countrys flip-flop rate will always be safe 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 direction the existence of afree or competitive foreign exchange market where the approach of one silver in terms of some other is determined by the forces of contribute and beg operating without any semiofficial 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 keen-sighted-term movements in the exchange rate, handle any price,are c aused by changes in market demand and cede conditions. Theappreciation of a countrys currency will occur due to all 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 abroad - . 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 last translated into a demand for pounds.This will cause an outward shift in the demand curve for sterling,thus causing the currency to appreciate.Foreign long te... ...viously cause a serious fall in livingstandards. supplant rate and inflationAn appreciation of the exchange rate helps to control cost and priceinflation in the economy.A fall in moment prices means that it is cheaper to import rawmaterials, components, finished manufactured products lead ing to anoutward shift in Short Run Aggregate Supply shown in diagram - thishas a direct impact on the Retail scathe IndexTougher for domestic companies to compete with cheaper imports - lowerprofit margins as businesses take in 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 big trade deficit represents a net outflow of demand from the throwaway flow of income and spending - leading to less demand-pull inflation.