Exchange Rate Research Paper

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2.2 Exchange rate
Exchange rate refer to the prices of the products and services of each country. It has its own currency that are quoted such as the currency of United States call dollar, the currency of Malaysia call Malaysian Ringgit, and the currency of Singapore call Singapore dollar (Wong 2000). Exchange rate play an important role in comparing the value of products and services in different countries throughout the world. Exchange rate is the price value of one currency that able to convert to another currency. For example, if the Singapore exchange rate for Malaysian exchange rate is 2.7, this means that 1 Singapore can be exchanged for RM 2.70. The factors that will influence the exchange rate includes the inflation rate, interest
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Flexible exchange rate also call floating exchange rate and usually fluctuation frequently. Flexible exchange rate is affected by the supply and demand of the currency in the foreign markets and free of government intervention. The demand of the currency affect by the exports products or services and the amount of investment of the country. While the supply of the currency affect by the imports products or services and the amount of investment in another countries. When it is excess supply or excess demand, market forces will drive the exchange rate moving to the equilibrium (Appendix 1). The currency is appreciation when the rate of one currency increases. An increase of the demand and a decrease of the supply of that currency can lead to an appreciation. Appreciation may lead to recession as the price of exchange rate become more expensive and foreigner will slowing the demand of the imports. Whereas, it is depreciation when the rate of one currency is declines. An increase of the supply and a decrease of the demand can lead to depreciation. Depreciation may lead to increasing demand of imports as the price of exchange rate become cheaper, and resulted in economic growth (Edge 2012) (Appendix…show more content…
The currency that under fixed exchange rate will not be affected by the change of the market forces. Under fixed exchange rate, an increase of price of the currency is known as revaluation, while a decrease of price of the currency is known as devaluation. In order to keep the currency at the fixed exchange rate, the central banks will buy its own currency to avoid depreciation, and sell its own currency at the foreign market to avoid appreciation. Devaluation example can refer to appendix 3 (Edge
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