You may be interested in getting more information than the relative price of two currencies, or the nominal exchange rate. If the exchange rate is too high, a surplus of US dollars drives it down. If a countries real exchange rate is rising, it means its goods are … The Balassa-Samuelson effect may thus rationalize (to some extent) why richer countries have higher price level.What happens if the consumption-to-output-ratio in the traded-good-sector declines?Employment shifts to the tradable production. In reality, most, if not all, exchange rates in the world are 'managed' in some way. This is why, the absolute value of the real exchange rate has no meaning if we do not compare it's value with the value of the real exchange rate in another period of time. Start studying Macroeconomics Exchange Rate. The real exchange rate (RER) compares the relative price of two countries’ consumption baskets. This is because there is a wage equalization across sectors. the market in which the currency of one country is exchanged for the currency of anotherthe price at which one currency exchanges for anothera fall in the value of one currency in terms of another currencya rise in value of one currency in terms of another currencyFactors that determine the quantity of US dollars that traders plan to buythe exchange rate, world demand for US exports, interest rates in the US and other countries, the expected future exchange ratePeople buy US dollars so they can buy US produced goods and services or US assets2 reasons why the exchange rate influences the quantity of US dollars demandedthe larger the value of US exports, the greater is the quantity of US dollars demanded on the foreign exchange marketthe larger the expected profit from holding US dollars, the greater is the quantity of US dollars demanded todaythe quantity of US dollars supplied in the foreign exchange market is the amount that traders plan to sell during a given time period at a given exchange ratethe exchange rate, US demand for imports, interest rates in the US and other countries, the expected future exchange rateOther things remaining the same, the higher the exchange rate, the greater is the quantity of US dollars supplied in the foreign exchange rate2 reasons the exchange rate influences the quantity of US dollars suppliedthe larger the value of US imports, the larger is the quantity of US dollars supplied on the foreign exchange marketfor a given expected future US dollar exchange rate, the lower the current exchange rate, the greater is the expected profit from holding US dollars, and the smaller is the quantity of US dollars supplied on the foreign exchange marketIf the exchange rate is too high, a surplus of US dollars drives it down.Factors for change in the demand for US dollars in the foreign exchange marketworld demand for US exports, US interest rate relative to the foreign interest rate, the expected future exchange rateat a given exchange rate, if world demand for US exports increases, the demand for US dollars increases and the demand curve for US dollars shifts rightwardUS interest rate relative to the foreign interest rate- demandif the US interest differential rises, the demand for US dollars increases and the demand curve for US dollars shifts rightwardat a given current exchange rate, if expected future exchange rate for US dollars rises, the demand for US dollars increases and the demand curve for dollars shifts rightwarda change in any influence on the quantity of US dollars that people plan to sell, other than the exchange rate, brings a change in the supply of dollarsUS demand for imports, US interest rates relative to the foreign interest rate, the expected future exchange rateat a given exchange rate, if the US demand for imports increases, the supply of US dollars on the foreign exchange market increases and the supply curve of US dollars shifts rightwardUS interest rate relative to the foreign interest rate- supplyif the US interest differential rises, the supply of US dollars decreases and the supply curve of US dollars shifts leftwardat a given current exchange rate, if the expected future exchange rate for US dollars rises, the supply of US dollars decreases and the supply curve of US dollars shifts leftwardIf demand for US dollars increases and supply does not change, the exchange rate rises.

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