Is strength of currencies also determinedy by the supply and demand?

Expert Answers
readerofbooks eNotes educator| Certified Educator

This is a very good question. It might sound odd, but currencies of countries changes on a daily basis. So, for instance one day a dollar (U.S.) might get you .75 euros and this can change to .6 in a few weeks.

Part of the reason that currencies fluctuate is due to supply and demand. In fact, this discussion is very important in today's economic climate where central governments are printing so much money. In other words, because there is so much extra money, the value of money is weakening. What makes this situation even worse is that many nations are doing this all at the same time - Europe, Japan, China and the United States.

So, through the printing of money, there is more supply and less demand. This all means that the value of money is decreasing. So, yes, supply and demand works even with currencies.

nikasho0100 | Student


If demand is high but supply is less for a currency - appreciation

But if demand is low but the supply is high - depreciation