The exchange rate of the U.S dollars with respect to other countries in foreign exchange market gave rise to numerous questions that have their answers in this chapter.
The first question is how the exchange rate can be estimated? What made the U.S. dollar to rise from the year 2000 to 2002? Then why the rate drop after 2002?
The second question is in what way the central banks control foreign exchange market? We already learned that exchange rates do fluctuate, then how did rate of exchange between U.S. dollar and Chinese yuan remain constant over the years?
The final set of questions does this fluctuation of exchange rates affects the international payment systems and trades? If yes then in what way? Is there any way to decrease our global deficit by altering the exchange rate? What impact does it leave on the trades between China and U.S with the alterations of the exchange rate?
So there are so many questions to get answers. But fornow, we can give a head start and enhance our knowledge and begin with ways to estimate the exchange rate while trading in foreign exchange market.