Roubles to the foreign exchange market. In other words, your demand for the Euro is equivalent

to your supply of roubles to the foreign exchange market. Indeed: Every Russian transaction

Concerning

The importation of foreign goods constitutes a supply of roubles and a demand for

Some foreign currency (the currency of that country where we buy the goods), and vice versa

For export transactions.

In this case it constitutes a demand for the Euro.

In our example we have assumed that only two goods are being traded — French wine and

Russian caviare. Thus, the Russian demand for French wine creates a supply of roubles and a

Demand for the Euro in the foreign exchange market. Similarly, the French demand for Russian

Caviare creates a supply of the Euro and a demand for roubles in the foreign exchange market. In

The situation of freely floating (or flexible) exchange rates, the supply of and demand for roubles

And the Euro in the foreign exchange market will determine the equilibrium foreign exchange rate.

The equilibrium exchange rate will tell us how many the Euro a rouble can be exchanged for — that

Is, the rouble price of the Euro — or how many roubles the Euro can be exchanged for — that is, the

Euro price of roubles.

8.7.1.2. Read and translate the text “Option Business.” Retell it.