How is the exchange rate determined in a free market?   

Jane Martin
@Jane.Martin · Posted 24 Sep. 2021

Kelly Jackson
@Kelly.Jackson · Posted 24 Sep. 2021

Exchange rates can be determined with the help of the law of demand and supply. There are few different types of exchange rates among them one is the equilibrium exchange rate in which we calculate quantity demanded is equal to quantity supplied. There is also one term that is appreciated when the market exchange rate increases and depreciation when the market price of the exchange rate decreases. Exchange rates are also set on by many foreign goods and assets. The foreign exchange rate is the rate at which one unit of currency of a country can be exchanged for the number of units of currency of another country. The equilibrium exchange rate is that part where the rate itself clears the foreign exchange market. There are also many markets models which determine the exchange rate. Moreover, we can use different types of laws that specify the determination of various exchange rates in a free market. GDP and trade balance are some of the factors affecting the foreign exchange rates.

Jack Penn
@Jack.Penn · Posted 24 Sep. 2021

There are many exchange rates which also include foreign exchange rates. Foreign exchange rates consist of brokers, commercial banks, central banks, exporters, importers, immigrants, and so on. In Flexible exchange rates, there are many pros and cons. Its advantages include that it avoids currency disruptions and motivates the firms to invest more. It also avoids devaluation. It mainly has many obstacles too because it is not very flexible. The exchange rate calculation formula includes money in after exchange/money before exchange. Types of exchange rates consist of fixed rate, flexible rate, forward rate, spot rate, and dual rate. Foreign exchange rates are the part where one currency is converted into another currency. There are mainly two types of market exchange-traded markets and OTC or Over Counter Market. The Foreign exchange rate is also called Forex. Consumers play a major role in this Forex market.

Peter Clark
@Peter.Clark · Posted 24 Sep. 2021

The policy by which one currency is exchanged into another is known as Foreign exchange rates. The features of foreign exchange rates include high liquidity, low trading cost, and many more. The participants of the foreign exchange market include the wholesaler, major banks, and retailers. There are two types of market spot market and forward market. There is as well valuation of currency which consists of winners and losers. Winners are those who mainly export and losers are those of the consumers who buy imports. There are also many foreign exchange exposures which include the transaction, translation, and economic as well. Fixed exchange rates are those which are fixed by its government through the agents. There is also a currency board that will manage the exchange rate with the foreign currencies. The formula for real exchange rate is Domestic Price * e / Foreign price. The  exchange rate determination is done where the government buys and sells its currency in the open markets for its influencers.

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