Floating Exchange Rates

The higher the ER (exchange rate) for CHF/€

• the more people from the Euro zone want to buy CHF

• the more people from the Euro zone demand €

• the more people from Switzerland demand €

• the higher the supply of CHF

If the ER for CHF/€ increases

• demand for CHF decreases

• supply of € increases

• the lower the demand for €

• supply of CHF decreases

Imports from USA into Euro zone are increasing. Reasons could be

• increased income in euro zone

• inflation in euro zone

• demand increases faster than supply in euro zone

• prices in USA increased

If imports from Switzerland to the Euro zone decrease (a)   of € decreases as well.

If exports from Europe to the USA increase the (a)   for € increases as well.

The reasons for increasing exports from Europe to foreign countries can be

• less inflation in Europe

• higher inflation in Europe

• less competition in Europe and therefore high prices

• better technologies and therefore better economies of scale in Europe

Decreasing exports from the EU to the USA mean

• increasing supply of €

• decreasing supply of €

• increasing demand for €

• decreasing demand for €

If the demand for € decreases, the ER of CHF/€

• increases

• decreases

• remains the same

• exports to Switzerland increase

If Germany experiences a boom and the economy in the USA is in a downturn, demand for €

• remains the same

• increases

• decreases

Inflation in Germany is higher than inflation in the USA. Therefore, demand for $

• decreases

• increases

• remains the same