Transcript Exchange rates - Business-TES

Exchange rates
What influences them?
What effect will they have on a
business?
Some ground work
We want to show what happens to the
amount of a good that people will demand
when the price changes.
Price
Draw a set of axis labelled
X=q
Y=p
Quantity
THINK!
If something is expensive,
do you buy a small or large
amount of it?
THINK!
As the price of this good falls, do you
buy more or less of it?
Draw a line on the axis's combining
these two thoughts.
Hopefully, you got something
like this…
Price
DEMAND
Quantity
Things to remember…
1. Cost is how much it COSTS to make the good or service
2. Price is how much the firm sells it for.
Linked to this is the important fact
that cost does not change only price.
(Look at how you labelled your y axis.)
THINK!
As the price rises can a
firm make more or less
profit on each item sold?
KEEP THINKING!
Therefore, will firms wish to
make more or less of a good
as the price rises?
Draw a line showing your thoughts on a set of axis’s similar
to those you put your demand curve on.
Hopefully, you got
something like this…
Price
Supply
quantity
Now lets put demand and supply
together…
Price
Supply
Demand
quantity
This is true for most things (but not all!).
It is certainly how the price of currency is
determined.
If the supply or demand for that currency
changes, then what will happen to the
price (The exchange rate?)
What will make S & D move?
Volume of exports
Why?
Volume of imports
Interest rates
What are they?
Government intervention
Speculation