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exchange_rate4.gif

exchange_rate4.gif

Summary: and selling other currencies. We can see all this on the diagram below. The selling of sterling pushes the supply curve to the right (S1 to S2) and is forcing the exchange rate down. The government decides to act, and so they sell various currencies (perhaps dollars, euro or yen) and buy sterling in exchange. This increases the demand for sterling, and pushes the demand

Image Dimensions: 330 x 267

Image originally found here.