EXCHANGE RATES

Exchange rates: the value of one currency expressed in terms of another.
Free exchange rate system: the value of currency is determined by supply and demand in free market.
Fixed exchange rate:the value of currency is controlled and set by the government.
Managed floating: when the free market operates but the government may intervene.
FREE EXCHANGE RATE/
Demand:the demand for currency comes from people who have other currencies and need to exchange them for that particular currency.
Why there is a demand for any currency?
answer is:
*people want to purchase this countries exports
*they want to invest in this country
So why may people want to invest in another country?
there could be two main reasons for that:
*currency of this country is more stable
*there are higher interest rates,so if,for example,someone will put his/her money in bank of this country he/she will gain more interest from that.

Supply:the supply for a currency comes from people who have that currency but want to change it to another,so there is a supply of this currency.
Why might the supply for something change?
*because people may need to have this currency in order to buy imports
*may be that people want to invest in another country
*also supply may change because of the speculators

Also there is a number of reasons for demand for any currency to increase or decrease.
It is increases because:
*speculators may expect the value of this currency to rise,so they will buy it and therefor demand increases.
*demand for exports of this country rises.
*an increase in investment in this country.
As the result the currency appreciates, there is a rise in the value of this currency.


It is decreases because:
*Invest rates have fallen
*Speculators think that the value of this currency will fall
*Demand for exports have fallen
As the result currency dapreciates.