Understanding Exchange Rates: Basics and Effective Exchange Rates

This video tutorial covers the basics of exchange rates, including the demand and supply curves for foreign currency, and how exchange rates are determined. It explores factors affecting exchange rate changes, such as inflation, interest rates, and speculation. The video also explains effective exchange rates and their calculation based on trade weightings.

What is the definition of an exchange rate?

Explain the relationship between demand for sterling and foreign investments.

Describe the shape of the demand and supply curves for foreign currency.

What happens to the quantity demanded for sterling when the exchange rate falls?

How does the supply of sterling relate to UK imports?

Discuss the factors that can lead to a depreciation of the exchange rate.

Explain the impact of inflation on the exchange rate.

How do expectations and speculation influence exchange rates?

What is an effective exchange rate and how is it calculated?

What role does the Bank of England play in determining the effective exchange rate?