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Chapter 15: Problem 1

Define: a. exchange rate b. flexible exchange rate system c. depreciation d. appreciation

Short Answer

Expert verified
Exchange rate is the value of one currency for the purpose of conversion to another. A flexible exchange rate system is a type of exchange rate regime where a currency's value is allowed to fluctuate according to the foreign exchange market. Depreciation is a decrease in the value of a currency in relation to another currency due to market forces, while appreciation is an increase in the value of a currency in relation to other currencies due to the same forces.

Step by step solution

01

Define Exchange Rate

The exchange rate is the price of one country's currency in terms of another country's currency. It determines how much of one currency is needed to purchase another.
02

Define Flexible Exchange Rate System

A flexible exchange rate system, also known as a floating exchange rate, is a type of exchange rate regime where a currency's value is allowed to fluctuate in response to foreign exchange market mechanisms. It is determined by the private market through supply and demand.
03

Define Depreciation

In economic terms, depreciation refers to a decrease in the value of a country's currency in relation to another currency. This often happens when the supply of the currency is greater than the demand.
04

Define Appreciation

Appreciation, in economics, is an increase in the value of a currency in terms of other currencies. This typically occurs when the demand for the currency is greater than the supply.

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