HOW TO EVALUATE THE EFFECT OF AN EXCHANGE RATE ON A PARTICULAR COUNTRY’S ECONOMY tts) SE nL Cutan eery| WHAT IS EXCHANGE RATE ? ‘An Exchange rate is a rate at which one currency will be exchanged for another currency and affects trade and the movement of money between countries. Most Exchange Rates are defined as floating and will rise or fall based on the supply and demand in the market.HOW EXCHANGE RATE FLUCTUATE Exchange rates can be free-floating or fixed. A free-floating exchange rate rises and falls due to changes in the foreign exchange market. A fixed exchange rate is pegged to the value of another currency. The Hong Kong dollar is pegged to the U.S. dollar in a range of 7.75 to 7.85. This means the value of the Hong Kong dollar to the U.S, dollar will remain within this range. Exchange rates have what is called a spat rate, or cash value, which is the current market value. Alternatively, an exchange rate may have a forward value, which is based on expectations for the currency to rise or fall versus its spot price. Forward rate values may fluctuate due to changes in expectations for future interest rates in one country versus another.| EXAMPLE FOR EXCHANGE RATE :- PC EO Re Se Re Rae eT ee CC Cee eae Oe currency in exchange for local currency. The buy rate is the rate at which one buys foreign currency back from travelers to exchange it for local currency. If the current exchange rate is 1.05, $200 will net 190 EUR in return. In this case, the equation is: Dollars / Exchange Rate = Euro $200 / 1.05 = 190.48 Euros After the trip, suppose 66 EUR is remaining. I the exchange rate has dropped to 1.02, the change from euros to dollars will be $67.32. 66 Euros * 1.0METHODS TO ANALYZE THE IMPACT OF EXCHANGE RATES ON A COUNTRY’S ECONOMIC PERFORMANCE :- ere ea fiesta (Peery Parity (PPP): read fosThe effect of an exchange rate on a particular countrys economy depends on various factors, such as the i) elasticity of demand for exports and imports i) the level of inflation il the interest rate differentiat iv) the balance of trade and v) the overall economic performance In conclusion, the effect of an exchange rate on a particular country’s economy is complex and multifaceted. It depends on how the exchange rate is determined by various factors and Pe oe ee ae og universal answer to how an exchange rate affects an economy, as it depends on the specific See ener eras---THANK YOU---