Links
Great sites for exchange rate data are
x-rates
and, also for longer time series,
oanda
and
finance.yahoo

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The foreign exchange market
The foreign exchange market is a mirror image of the balance of payments, which records all cross border transactions. Such transactions, including exports, imports or the purchase of foreign stocks or real estate, normally require the purchase or sale of foreign currency, of foreign exchange.
The price of foreign currency, the exchange rate, is determined by supply and demand in the foreign exchange market. Textbooks usually discuss the foreign exchange market in one of two ways:
  The orthodox way is to treat it like any other market and graph it by means of conventional supply and demand curves, where the point of intersection determines the exchange rate.
  A shortcut often used is to simply state an equilibrium condition, such as uncovered interest parity.
This section presents an elearning applet designed to show how these two approaches are related, and this way provide a deeper understanding of the foreign exchange market and the balance of payments.
This applet explores the foreign exchange market. It starts with a scenario without capital flows to develop a conventional representation of the foreign exchange market by means of supply and demand curves, and shows how their interaction bears on the exchange rate.

In a second step, it then adds capital flows to the diagram, and shows how and why this graphical tool breaks down and transforms into an interest parity condition once capital flows become fully flexible.



Copyright 1997-2013, Manfred Gärtner. All rights reserved.