#AP Macroeconomics: Foreign Exchange Market - The Night Before 🚀

Hey! Let's get this bread 🥖! You've got this. We're going to break down the foreign exchange market (FOREX) so it all clicks, just in time for the exam. Let's dive in!

#Understanding the Foreign Exchange (FOREX) Market

# Demand for Foreign Exchange 🌍

Foreign exchange demand isn't about wanting money itself, but about wanting a currency to buy stuff or invest. Think of it like this: if Europeans want more American goods or want to invest in the U.S., they need to demand more dollars. This shifts the demand curve for dollars to the right, increasing the exchange rate (making the dollar more expensive).

• Key Concept: Demand for a currency is driven by the desire to purchase goods/services or invest in that country.

Caption: Increase in demand for US dollars shifts the demand curve to the right, increasing the exchange rate.

• Inverse Relationship:
  • Exchange rate ⬆️, quantity of currency demanded ⬇️
  • Exchange rate ⬇️, quantity of currency demanded ⬆️

# Supply of Foreign Exchange 💸

Foreign exchange supply is about how much of a currency people are willing to sell at different exchange rates. If Americans want more European goods or want to invest in Europe, they'll supply more dollars to buy euros. This shifts the supply curve for dollars to the right, decreasing the exchange rate (making the dollar less expensive).

• Key Concept: Supply of a currency is driven by the desire to purchase goods/services or invest in other countries.