Ⅵ Fluctuations of the Exchange Rate:

A. Why do exchange rates vary so much in the short run?

Two reasons:

Inventory Control – effect on exchange rateswhen traders alter quotes to maintain a balance between amount of currencybought and sold to “square off” at the end of a day.

Asymmetric Information – causes exchangerates to change due to traders’ fear that they are quoting prices to someonewho knows more about the current market conditions than they do.

B. What causes the long-run fluctuations of the exchange rate?

In the long run, economic factors affect theexchange rates.

One of these factors is a change in demandfor domestic goods relative to foreign goods will cause the movement inexchange rates.

Trade Flow Model – Demand/Supply model toexplain the long-run movement of exchange rate.

Fluctuations of the exchange rate

01 Video_ Currency exchange introduction

02 Video_ Supply and demand curves in foreign exchange

03 Video_ Causes of shifts in currency supply and demand curves

来源：https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/ap-open-economy-international-trade-and-finance/the-foreign-exchange-market/