The market for foreign exchange Aggregate demand curve for pounds. Aggregate supply curve of pounds.
Market equilibrium occurs at the intersection of the aggregate demand and supply curves.
Fixed exchange rates must be supported by the central bank, and are vulnerable to speculative attacks. Market Demand Curves are aggregates of individual demands. Equivalently, demand curves tell you what price you have to charge in order to sell a given quantity. Market equilibrium Think of there being only one bank that supplies and demands foreign exchange. As the price of the pound falls, fewer pounds are supplied, and more are demanded.