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Essay / Research Paper Abstract
This 4 page paper answers a set of questions which look at the way the exchange rate between the US Dollar and the British Pound may be influenced. The exchange rate in September 2012 is identified and used to calculate an exchange transaction. The way the currencies may move and the relevant purchasing value is discussed with reference to parity models. The bibliography cites 6 sources.
Page Count:
4 pages (~225 words per page)
File: TS65_TEUKdollar.doc
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Unformatted sample text from the term paper:
This means that for every dollar owned and exchanged to sterling ?0.62448 would be received. If a total of $202,995 is invested this would give a total value of
?126,766.30, this has been calculated as shown in table 1. Table 1 Exchange rate calculation US Dollar (a) Exchange rate (b) Sterling value (a x b) $202,995 0.62448 ?126,766.3
Question 2 The UK has a floating exchange rate mechanism. This means that the price of Sterling is determined by market forces. In simple terms, when the demand for
sterling is greater than the fifth supply the price for sterling would increase, until a point of equilibrium is reached where supply equals demand (Nellis and Parker, 2006). Conversely, if
the supply of sterling on international money markets is greater than the demand then the price of sterling will decrease until a new point of equilibrium is reached (Nellis and
Parker, 2006). Although the country has a floating exchange rate, there is the potential for some management take place, with the Bank of England (the central bank), stepping in during
extreme circumstances. This may be undertaken by either increase the supply of sterling by selling more the currency, or decreasing the supply sterling by increasing demand using foreign reserves to
purchase sterling. However, this is very rarely utilised. Question 3 When determining if an individual, being paid a fixed wage in dollars, but working in England, will be relatively
better off at the end of two years, it is necessary to consider the way in which exchange rates are likely to move. If the exchange rate moves so that
the dollar purchases fewer pounds (the dollar depreciates) at the end of the two years, the individual will be worse off, as they will receive less money when converting it
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