International finance Essay Example | Topics and Well Written Essays - 1500 words - 4

International finance - Essay ExampleOn the other hand, appreciation of the domestic currency refers to increase in rally rate brought about by forces of the trade in the value of domestic currency in terms of a unconnected currency. The need for foreign surface argonas currency in secernate to buy goods denominated in a foreign currency is reflected by demand for the foreign currency. In most cases, the interchange country denominates its goods and services in terms of domestic currency hence importers from other countries will feel the need for the foreign currency in order to conduct the financial transaction.Foreign currency is supplied into the country when foreign currency is sold in order to carry out financial transactions that are denominated in home currency. It is the demand for and supply of a currency which yields an equilibrium position in the foreign exchange market. The equilibrium show being the point where there is an intersection between the upward sloping supply curve and the downward sloping demand curve (Koller, Goedhart and Wessels, 2010). A low value of foreign currency makes the demand for foreign currency on the foreign exchange market to increase whereas the demand for foreign goods increase due to its relatively cheaper price than domestic goods. On the other hand, a high value of foreign currency makes the demand for foreign currency on the foreign exchange market to decrease whereas the demand for foreign goods increase due to its relatively higher price than domestic goods (Needles, Powers and Crosson, 2010).Therefore, the question that arises is the cause of exchange rate revaluation and whether the depreciation or appreciation of an exchange rate can be predicted. This paper will rightly answer this questions by using a thorough reciprocation on the determination of exchange rate using the flexible price monetary model. The discussion will further explore the ability or softness of the model to explain the observed mo vements in foreign