American Dollar Case

Exchange rate is the rate where one country currency can be convert to the other .The exchange rate between the country currency and the American Dollar is changing constantly due to the change in demand and supply of each country's currency in terms of American Dollars ($). For the currency which have depreciated, if Americans began to appreciate more of their country's product, the value of the particular currency will increase . This is because of the American's importer have to place bigger order and pay in the particular country's currency.

When the demand for the Country's currency increase, the demand curve of the Country's currency will sifts Figure 1.The out come is a rise in American Dollars value of the country's particular currency and increase in the exchanged amount of the Country's currency.

The other reason why there is appreciation and depreciation of the currency is due the interest rate . If the particulars country currency rise relative to the interest rate in America , So there will more people who want to lend money in host country. Thus the American's who is willing to lend money in a particular country must first convert into each currency which they need . This also increases the demand for particular

country's currency. The outcome will be same as Figure 1 where the demand curve shifts to the right. The host country's dollars will appreciate and more host country's currency will be exchange for dollars.

Moreover Political stability can also affect the exchange rate of the country. If there is a uncertainly in particulars country controlling and maintaining justice, fewer people will want to invest in your in your country's. Even though the interest are in even high the demand for the host currency would fell. This will make the shift the demand for the currency to shift to the left. When the business dealer from the host country want some of their wealth in America, they will start by trading their currency for dollars. This reflected in a shift to the right in the supply of host country's currency. So the political instability would decrease and increase the supply Figure 2.

In addition Relative Prices in both other's country and America also effect the change in exchange rate. When American's stop purchasing the other's country products owing to the higher price this will reduce the demand for the for particulars country's currency. However, People from that Particular country's will buy more American's Products as their American Dollars is stable. Thus this will increase the supply of particulars' country currency. The outcome will be same as Figure 2.

Furthermore