* Meaning of exchange rate. * The effect of a change in exchange rate on import and export prices. * Comparison between fixed and floating exchange rate. * Reasons for sales and purchase of currencies.

1. EXCHANGE
RATES

2. The value of the exchange rate is influenced by:
• The current account balance
• Direct and portfolio investment
• Speculation
• Government action

3. Consequences of a change in exchange rate:
A change in the exchange rate will affect:
• Exports and imports
• Economic growth
• Employment
• Inflation

4. A fall in the exchange rate will:
• Increase demand for domestic products.
• Raise the aggregate demand
• Increae output and employment of the economy.
ALSO
Increase inflationary pressure because:
• Imported raw materials will be more expensive.
• Finished imported products will also be more
expensive.

5. Measures to improve current account position:
1) Expenditure switching measures:
• Encouraging people to buy more domestic and fewer
foreign products.
• Trade restrictions.
2) Expenditure reducing measures:
• Increasing income tax
• Raising the rate of interest
• Pushing up rates of indirect taxes

6. Indicators of a Country's International Competitiveness:
• Economic growth rate
• Share of world trade
• Levels of expenditure on R & D
• The quantity and quality of education
• The country's infrastructure
Factors Influencing International Competitiveness:
• Exchange rate
• Inflation rate
• Productivity

7. Prepared By:
Ahmed Waqar Mohsin
(Economics Teacher)
Al-Ansar International School
Sharjah-UAE