Kenneth R. Szulczyk
Price of ringgits
$ per ringgit
Quantity of ringgit
Figure 4. Impact of higher interest rates on the ringgit exchange market
Price of U.S. dollar
Pesos per U.S. dollar
Quantity of U.S. dollars
Figure 5. Impact of inflation on the U.S. dollar exchange market
A central bank can increase or decrease the supply of its currency on the foreign exchange
markets. For example, we show the U.S. dollar exchange market in Figure 6. Market price is P
while Q represents market quantity. The Federal Reserve System, the U.S. central bank,
increases the U.S. dollars on the international exchange market. Consequently, the supply