Exchange rates
Description:
Exchange rates according to Wikipedia means: "how much one currency is worth in terms of the other". Essentially this means that if a company in Europe means to buy products from China, and the exchange rate is 1 euro for every 10 Chinese yuan, then it only takes 10 euros to pay for a 100 euro bulk buy of cheap transistors. This view does not take into account any other factors such as nominal vs real exchange rates, interest rates or inflation. The currency market is one of demand and supply, as other markets are. Meaning if there is a high demand for Chinese yuan, the price will decrease. So the price of buying yuan with 1 euro will decrease.
Enablers:
- Inflation
- Interest rates
- Economic decline
Inhibitors:
- Economic stability
- In-house production vs import
- Low foreign investment
Paradigms:
Old: A much larger and complex market with many different currencies in Europe alone. New: Trading predominantly in Euro, Yen, Yuan, and Dollar. Stronger currency in whole of Euro-holding countries.