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Exchange rate market for u.s. dollars reacts to higher interest rates

The graph shows how supply and demand would change if the U.S. dollar brought a higher rate of return.
A higher rate of return for U.S. dollars makes holding dollars more attractive. Thus, the demand for dollars in the foreign exchange market shifts to the right, from D 0 to D 1 , while the supply of dollars shifts to the left, from S 0 to S 1 . The new equilibrium (E 1 ) has a stronger exchange rate than the original equilibrium (E 0 ), but in this example, the equilibrium quantity traded does not change.

Relative inflation

If a country experiences a relatively high inflation rate compared with other economies, then the buying power of its currency is eroding, which will tend to discourage anyone from wanting to acquire or to hold the currency. [link] shows an example based on an actual episode concerning the Mexican peso. In 1986–87, Mexico experienced an inflation rate of over 200%. Not surprisingly, as inflation dramatically decreased the purchasing power of the peso in Mexico, the exchange rate value of the peso declined as well. As shown in [link] , demand for the peso on foreign exchange markets decreased from D 0 to D 1 , while supply of the peso increased from S 0 to S 1 . The equilibrium exchange rate fell from $2.50 per peso at the original equilibrium (E 0 ) to $0.50 per peso at the new equilibrium (E 1 ). In this example, the quantity of pesos traded on foreign exchange markets remained the same, even as the exchange rate shifted.

Exchange rate markets react to higher inflation

The graph shows how supply and demand would change if the pesos experienced inflation.
If a currency is experiencing relatively high inflation, then its buying power is decreasing and international investors will be less eager to hold it. Thus, a rise in inflation in the Mexican peso would lead demand to shift from D 0 to D 1 , and supply to increase from S 0 to S 1 . Both movements in demand and supply would cause the currency to depreciate. The effect on the quantity traded is drawn here as a decrease, but in truth it could be an increase or no change, depending on the actual movements of demand and supply.

Visit this website to learn about the Big Mac index.

Purchasing power parity

Over the long term, exchange rates must bear some relationship to the buying power of the currency in terms of goods that are internationally traded. If at a certain exchange rate it was much cheaper to buy internationally traded goods—such as oil, steel, computers, and cars—in one country than in another country, businesses would start buying in the cheap country, selling in other countries, and pocketing the profits.

For example, if a U.S. dollar is worth $1.60 in Canadian currency, then a car that sells for $20,000 in the United States should sell for $32,000 in Canada. If the price of cars in Canada was much lower than $32,000, then at least some U.S. car-buyers would convert their U.S. dollars to Canadian dollars and buy their cars in Canada. If the price of cars was much higher than $32,000 in this example, then at least some Canadian buyers would convert their Canadian dollars to U.S. dollars and go to the United States to purchase their cars. This is known as arbitrage    , the process of buying and selling goods or currencies across international borders at a profit. It may occur slowly, but over time, it will force prices and exchange rates to align so that the price of internationally traded goods is similar in all countries.

Questions & Answers

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s.
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Graphene has a hexagonal structure
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Cied
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I start with an easy one. carbon nanotubes woven into a long filament like a string
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Porter
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AMJAD
preparation of nanomaterial
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Yes, Nanotechnology has a very fast field of applications and their is always something new to do with it...
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In this morden time nanotechnology used in many field . 1-Electronics-manufacturad IC ,RAM,MRAM,solar panel etc 2-Helth and Medical-Nanomedicine,Drug Dilivery for cancer treatment etc 3- Atomobile -MEMS, Coating on car etc. and may other field for details you can check at Google
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this technology will not going on for the long time , so I'm thinking about femtotechnology 10^-15
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Prasenjit Reply
At high concentrations (>0.01 M), the relation between absorptivity coefficient and absorbance is no longer linear. This is due to the electrostatic interactions between the quantum dots in close proximity. If the concentration of the solution is high, another effect that is seen is the scattering of light from the large number of quantum dots. This assumption only works at low concentrations of the analyte. Presence of stray light.
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Source:  OpenStax, Principles of macroeconomics for ap® courses. OpenStax CNX. Aug 24, 2015 Download for free at http://legacy.cnx.org/content/col11864/1.2
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