Determination of Exchange Rates in a Free Market
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Using an example to explain your response, describe how exchange rates are determined in a free market.
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The demand for any currency is derived from the demand for goods and services form the respective country. This is discussed further in almost 250 words within, using an example.
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Exchange rate is the price of one currency in terms of another currency. For example, if we wanted to know the price of US $ in terms of UK £, the exchange rate is defined as $/£. Alternatively, if we wanted to know the price of UK £ in terms of US $, we will write the exchange rate as £/$.
The value of the exchange rate is ...
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