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Macroeconomics: Theory and Policy by Vanita Agarwal

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22

Foreign Exchange

After studying this topic, you should be able to understand

  • In a foreign exchange market foreign, currency (or foreign exchange) is purchased and sold by individuals, firms, commercial banks and the central banks of the different countries.
  • Two types of foreign exchange transactions are spot transaction and forward transaction.
  • The exchange rate reflects the purchasing power of one country’s currency in terms of the purchasing power of another country’s currency.
  • Two nominal exchange rate systems are flexible or floating exchange rate system and fixed exchange rate system.
  • As to how the exchange rate is determined, will depend on whether the exchange rates system is a flexible or a fixed exchange rate system.
  • In a flexible ...

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