Exchange-rate quotation and currency markets
| English | 中文 | Pinyin |
|---|---|---|
| exchange rate/eksˈtʃeɪndʒ reɪt/ | 汇率 | huì lǜ |
| currency speculation/ˈkʌrənsi ˌspekjʊˈleɪʃn/ | 货币投机 | huò bì tóu jī |
A decision you can investigate
- An importer needs foreign currency to pay a supplier. An overseas tourist needs local currency to spend here.
- These transactions create different sides of a currency market.
Build the explanation
- An exchange rate 汇率 is the price of one currency in another. Always state the quotation: 7 yuan per US dollar means one dollar costs seven yuan. Dollars to yuan multiply by 7; yuan to dollars divide by 7.
- In a market for yuan priced in foreign currency, foreign demand for Chinese exports can raise demand for yuan; Chinese demand for imports can raise its supply. Higher relative interest returns may attract demand, while speculative expectations can also shift demand or supply. Use the currency named on the quantity axis.
Work through the evidence
- At a fictional 7 yuan per dollar, a 100-dollar import costs 700 yuan; 1400 yuan buys 200 dollars. In a separate schematic market for yuan quoted in dollars per yuan, greater demand for yuan raises its dollar price with supply unchanged.
- A fall from 7 to 6 yuan per dollar means one yuan buys more dollars: the yuan appreciates. The two quotations move in opposite directions; labels prevent an apparent contradiction.
A 100-dollar purchase at 7 yuan per dollar costs
Multiply dollars by yuan per dollar.
Which can raise demand for yuan in the stated yuan market?
Foreign buyers need yuan to pay for the exports under this simplified mechanism.
A rate quoted as yuan per dollar rises whenever the yuan appreciates against the dollar.
The reciprocal quote falls when one yuan buys more dollars.
Test the limits
- Relative rates, expected currency changes and risk affect capital flows; a domestic rate rise alone does not guarantee appreciation. Imports/exports and speculation may shift both sides.
- All rates here are fictional teaching rates, not current market quotations. Do not place yuan per dollar on a diagram whose quantity axis is yuan without explaining the reciprocal market.
What happens to the yuan when its quotation falls from 7 to 6 yuan per dollar?
Fewer yuan buy the same dollar; each yuan has greater dollar purchasing power.
Apply and explain your answer
- At the fictional rate, how many dollars can 1400 yuan buy?
- 1400/7 = 200 dollars.
Match the terms to their meanings.
Each term describes a specific mechanism in this lesson.
Use the terms precisely
- exchange rate: The price of one currency expressed in another currency.
- currency speculation 货币投机: Buying or selling currency in anticipation of future price changes.
At a fictional 7 yuan per dollar, a 100-dollar import costs 700 yuan; 1400 yuan buys 200 dollars. In a separate schematic market for yuan quoted in dollars per yuan, greater demand for yuan raises its dollar price with supply unchanged. A fall from 7 to 6 yuan per dollar means one yuan buys more dollars: the yuan appreciates. The two quotations move in opposite directions; labels prevent an apparent contradiction.
Relative rates, expected currency changes and risk affect capital flows; a domestic rate rise alone does not guarantee appreciation. Imports/exports and speculation may shift both sides. All rates here are fictional teaching rates, not current market quotations. Do not place yuan per dollar on a diagram whose quantity axis is yuan without explaining the reciprocal market.
An exchange rate is the price of one currency in another. Always state the quotation: 7 yuan per US dollar means one dollar costs seven yuan. Dollars to yuan multiply by 7; yuan to dollars divide by 7.