Question

Exchange rates can indicate economic health by

Answer 1

The correct answers are the following:

• showing the relative strength of different nations’ currencies.  
• examining spending patterns across nations and continents.

The exchange rate provides the amount of one currency that has to be provided (price) in order to obtain one unit of a different currency.

Exchange rates are mostly fixed by the forces of supply and demand, hence, depending on consumer needs and preferences and of their relative abudance or scarcity. Threfore, the final exchange rate (price) reached in the market shows the strength of a currency against a foreign one.

Moreover, demand and supply of currencies arise due to international commercial activities that require traders to exchange their money into a different currencies if they want to purchase/sell abroad. Therefore, exchange rates (prices) reached are also dependent on spending patterns in the different countries, more specifically on the streams of exports and imports.