The paper "Factors Influencing Exchange Rates, Trade Protection Merits and Mechanism Used for Trade Protection" is a great example of an essay on macro and microeconomics. Exchange rates are a term used in finance. Different states have currencies with distinct values. Generally, due to international trade, money must be exchanged. This is done depending on the worth of one currency compared to the other. Money can be exchanged in two distinct forms. The first one is the instant exchange rate where the money is exchanged immediately. Secondly, there is a forward exchange where the money is not instantly exchanged but it is to be done later.
Classification of money exchange rates is further done into two categories namely: set and floating rates. Inset rates, a state decides the value of its currency in comparison to the other currencies from different states according to some universal regulations. On the other hand, under floating rates, the worth of a currency is determined by demand and supply forces. There are various factors that influence exchange rates. To commence with, capital mobility has greatly influenced. When a nation borrows money from another in form of a loan, it gets it in form of foreign currency.
The lending nation’ s currency (Bowen 1998) gains demand. If the lending nation does this severally to different countries, the demand rises further. This indeed leads to increment to its value as compared to the other states that have been borrowing hence the rate of exchange consequently shoots up. On the same note, a country’ s currency value can be advanced by allowing many people to invest in the country. This can be facilitated by increasing the amount of interest on the principal amount of money invested (Leontief 1953).
The country can allow people to buy shares and other securities and give them good returns. This is because the money of the country where investment is being done will be highly demanded hence the increase in its value. In addition, monetary policy has caused a change in exchange rates. When prices change of certain goods and services in a certain nation, this lends to change in the rate of exchange of its currency.
If the price of commodities and services provided by a country goes up, then the amount that is exported decreases. This means there will be less demand for the nation’ s currency hence a decline in its value.
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