Factors Causing Changes in Exchange Rates
Exchange Rates
AO2·AO4
Syllabus requirement
Includes trade flows, investment, interest and inflation rates, speculation, and central bank actions.
Assessment objectives
AO2 Application and AnalysisAO4 Use of Appropriate Skills
Summary
This topic explains how central bank actions and currency controls can change exchange rates. It shows that a central bank can alter interest rates or restrict currency trading (for example, by allowing trading only through approved outlets) and that such measures affect the demand for and supply of a currency, thereby influencing its value on foreign exchange markets.