After reading chapters 16, 17, 18, and 19, write a 2-page paper describing how currency exchange rates are determined in markets.

Exemplify how it occurs by showing it in graphical form.

How does a country’s balance of trade coincide with its exchange rate with another country?

Please cite sources used.

preview of the answer..

Currency is just like any other commodity in the market. Its rates are determined by demand and supply factors. However, it depends with the currency of a country whether it is fixed or pegged, free-floating or a hybrid of the two. The free floating case is what involves the market forces in determining the currency rates (Rosenberg & Michael, 13).

Taking the example of two trading partners or countries, that is the US and Australia. This makes the dollar to be needed in both the US and the Australian market. The Australian market needs a different amount of dollars in relation to the US market. The Americans will always want to avail a certain number of dollars in the market for the Australians. The price for the dollars will be the nominal exchange rate. If the exchange rate is high, there will be less …

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