What Is a Market Rate?
The market exchange rate refers to buying and selling foreign exchange in a free market, and the value of the currency depends on the actual exchange rate of supply and demand. In countries where foreign exchange management systems are relatively loose, official exchange rates are often unavailable, and actual foreign exchange transactions are conducted at market exchange rates. [1]
Market exchange rate
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- The market exchange rate refers to buying and selling foreign exchange in a free market, and the value of the currency depends on the actual exchange rate of supply and demand. In countries where foreign exchange management systems are relatively loose, official exchange rates are often unavailable, and actual foreign exchange transactions are conducted at market exchange rates. [1]
- Market exchange rate refers to the purchase and sale of foreign exchange in the free foreign exchange market
- If the goods produced by the two countries are homogeneous, and
- The theory states that any two currencies
- Factors affecting long-term exchange rates:
- Relative price level
- In the long run, a country's rising price level (relative to foreign prices) will cause its currency to depreciate, while a country's falling relative price level will cause its currency to appreciate.
- Trade barriers
- Free trade barriers such as tariffs and quotas affect exchange rates. Increasing trade barriers has led to a long-term appreciation of the country's currency.
- consumer preference
- Preference for domestic and foreign goods. Increasing demand for a country's exports will cause its currency to appreciate in the long term; in contrast, increasing demand for imports will cause its currency to depreciate.
- Production capacity
- In the long run, when a country's production capacity increases relative to other countries, its currency will appreciate.