its own currency. Some countries in

its own currency. Some countries in an economic zone share a currency, for example the 13 European countries that share the euro, but this is quite rare. If I live in a Eurozone country and I want to buy something from the UK, I must buy it using UK sterling. To do this I need to exchange my euros for sterling. The amount of sterling I can swap for each euro depends on the exchange rate.

For example, if the exchange rate is £?1 = ˆ1.50 and the-camera I want to buy is worth £?100, then to buy the camera I must spend 100 x 1.5 = ˆ150. Similarly, if someone in the UK wants to buy something from a Eurozone country, they must exchange their sterling for euros. If the computer they want to buy costs ˆ500, then they must spend 500x0.75 - £?375.

Most exchange rates, however, do not stay the same. They are changing all the time. Imagine that a few days later the exchange rate changes to £?1 = ˆ1.45. This would make the camera cheaper for me, but the computer more expensive for the buyer in the UK. In other words, sterling has got weaker against the euro and the euro has got stronger against sterling.

But what makes the exchange rate change? To understand this, just think of
the exchange rate as the price of the currency. Just like any other commodity, the
price of a currency is decided by supply and demand in the market. The rate set
will be the equilibrium point where supply and demand meet.   —

Where does demand for a currency come from? Lefs take the euro, for example. Exports from the Eurozone need to be paid for in euros. This means the buyers of those exports need to buy euros to make their purchases. So the demand for euros increases. Also, investors from outside the Eurozxwie may want to invest their money there because they think they will make a profit. To do this, they must buy euros, and again the demand for euros increases. The supply of euros on the international money markets comes from people who want to sell euros. If people want to buy imports from countries outside the Eurozone, or if they want to invest in countries outside the Eurozone, they must sell their euros to buy other currencies. So the supply of euros increases.

A change in the exchange rate of a currency can have a big impact on the economy. For example, it can have a big impact on the economy's balance of payments. As we saw in the example earlier, when a currency gets stronger, imports become cheaper. But at the same time, exports to overseas customers get more expensive. This will probably mean that more money will flow out of the economy than in.

Результаты (русский) 3:

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