Saturday, May 8, 2010

I answered a question on Aardvark


Aardvark is a great service and the company was recently acquired by Google. Basically, it is an ask and answer service but a very effective one indeed. Sometimes I just try and answer random questions and today I answered one about Currencies.


(From Maurice S./21/M/Beirut,Lebanon -- about 3 hours ago)
I do not understand this business concept:
The flow of goods and services between countries generates a supply of the importer's currency and a demand of the exporter's currency? I do not understand the supply/demand part??


My answer:

me: I am not a business or economics student but let me just try and explain what I understood. Suppose your currency is gold and my currency silver. You are selling some carpets. So you are the exporter. I want those carpets so I am the importer. To pay you, i need Gold which is your currency. Silver is not good for you. So I will go to a third person who exchanges gold for silver. I ask this third person for gold,  If there are other people wanting ur carpets, they will also ask for gold, thus increasing the demand for gold. At the same time, I am giving silver in exchange for this gold, so the supply of silver increases. You can now apply this analogy to countries and currencies. Hope that was helpful

You can see the thread here .

Was my reasoning correct?

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