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explain how the exchange rate is established.

explain how the exchange rate is established.

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Answer #1

Exchange rate in the market for a particular currency is determined by the demand for the currency and the supply of that currency. Demand function for the currency is downward-sloping and the supply function of the currency is upward-sloping. The equilibrium at which the demand curve and the supply curve meet determine the exchange rate. This is the rate at which market participants are agree to trade one currency with the other. It also determines the quantity of currency exchanged

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