The Effect of Exchange Rates on Demand and Supply
Order ID |
53563633773 |
Type |
Essay |
Writer Level |
Masters |
Style |
APA |
Sources/References |
4 |
Perfect Number of Pages to Order |
5-10 Pages |
Description/Paper Instructions
The Effect of Exchange Rates on Demand and Supply
Exchange rates refer to the price of one currency in terms of another currency. They play a crucial role in the international trade and financial transactions. The exchange rate affects demand and supply in different ways, and it has a significant impact on the economy of a country. In this article, we will discuss the effect of exchange rates on demand and supply.
Demand
The exchange rate has a direct impact on the demand for goods and services. When the exchange rate of a country’s currency decreases, its exports become cheaper, and imports become more expensive. This leads to an increase in demand for the country’s exports and a decrease in demand for imports. For example, if the exchange rate of the US dollar decreases relative to the euro, the US exports to Europe become cheaper, and the demand for US goods and services increases. On the other hand, imports from Europe become more expensive, and the demand for European goods and services decreases.
Similarly, when the exchange rate of a country’s currency increases, its exports become more expensive, and imports become cheaper. This leads to a decrease in demand for the country’s exports and an increase in demand for imports. For example, if the exchange rate of the US dollar increases relative to the euro, the US exports to Europe become more expensive, and the demand for US goods and services decreases. On the other hand, imports from Europe become cheaper, and the demand for European goods and services increases.
In addition to the direct impact on demand for goods and services, exchange rates also affect the demand for financial assets. When the exchange rate of a country’s currency decreases, foreign investors find it cheaper to invest in that country’s financial assets, such as stocks and bonds. This leads to an increase in demand for the country’s financial assets, and the country experiences capital inflows. Conversely, when the exchange rate of a country’s currency increases, foreign investors find it more expensive to invest in that country’s financial assets, and the country experiences capital outflows.
Supply
The exchange rate also has an impact on the supply of goods and services. When the exchange rate of a country’s currency decreases, the cost of imported inputs, such as raw materials and components, increases. This leads to an increase in the cost of production for domestic producers, and they may reduce their supply of goods and services. For example, if the exchange rate of the US dollar decreases relative to the Chinese yuan, the cost of imported raw materials and components from China increases, and US producers may reduce their supply of goods and services.
On the other hand, when the exchange rate of a country’s currency increases, the cost of imported inputs decreases, leading to a decrease in the cost of production for domestic producers. This leads to an increase in the supply of goods and services. For example, if the exchange rate of the US dollar increases relative to the Chinese yuan, the cost of imported raw materials and components from China decreases, and US producers may increase their supply of goods and services.
In addition to the impact on the supply of goods and services, exchange rates also affect the supply of financial assets. When the exchange rate of a country’s currency decreases, the country’s financial assets become cheaper for foreign investors. This leads to an increase in the supply of financial assets, and the country experiences capital outflows. Conversely, when the exchange rate of a country’s currency increases, the country’s financial assets become more expensive for foreign investors. This leads to a decrease in the supply of financial assets, and the country experiences capital inflows.
Conclusion
In conclusion, the exchange rate has a significant impact on the economy of a country. It affects both the demand and supply of goods, services, and financial assets. The impact of exchange rates on demand and supply depends on various factors, such as the level of international trade
The Effect of Exchange Rates on Demand and Supply
RUBRIC
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30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. |
40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. |
50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. |
Use of Sources (worth a maximum of 20% of the total points). |
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5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. |
10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. |
15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. |
20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. |
Grammar (worth maximum of 20% of total points) |
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15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. |
20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. |
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7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. |
10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. |
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