 In this section, I will explain the factors that influence the exchange rate in the short run. So, when we look at the foreign exchange trading, we see that it can happen 24 hours, 7 days a week. At any time, you can trade foreign exchange or it happens. And another important thing which is linked with this foreign exchange is that we always do the trading in currency pairs. If the currency pairs are there, then the exchange cannot be otherwise. So, we have to see that the British pound of Great Britain is going against yen. Dollar is exchanging with Euro, Pakistani rupee is exchanging with Yuan. So, you always have currency pairs. Now, the main thing which helps to determine the rate of exchange in the short run, that is the supply and the demand forces. How much is the supply of any currency and how much is the demand of that currency. Both these things influence your exchange rate. But we always put up the exchange rate in the form of a pair. As you can see, if we represent US dollars from USD, this is an international notation. So, the exchange rate we have is GBP divided by USD over USD. Similarly, USD divided by CAD means Canadian dollar. So, if the value of the currency pair is 1.33, then you have to remember that the words written in the numerator are always 1. And when we have written the value of 1.33, it means that USD is equal to 1.33 CAD. So, this is how we read it. Similarly, if I write USD divided by PKR is equal to 176, it means that you have to use one for the numerator. 176 PKR is equal to 176 PKR. So, this is the way we interpret this particular thing. So, the currency written above is called 1. Its value is 1. Now, we were going to talk about how to determine the value of the exchange rate in the short run. So, we can see that since we are dealing with the short run, then we have fixed the supply of a certain currency as a vertical straight line. But the demand is negatively sloping. This means that the exchange rate is high. So, the demand will obviously come down. And if the exchange rate will come down, then your demand will increase. You will like to take more of that currency. Now, there could be factors which cause these particular changes. And there could be jumps. There could be irregular movements. There could be panic situation. Or there could be increase in the demand for a certain foreign goods or locally produced goods. All these factors could be the difference of the weather. Due to which, there could be ups and downs in the market. But if suppose to discuss this particular diagram, suppose we are sitting at a point where EA is the exchange rate, then here you can see that the overall market perception is that the exchange rate is quite high. So, the demand will come down. And your supply is fixed. Due to the excess supply, the price of the exchange rate will go down. And you can see that this is being represented by this red downward arrow. And it will stop at a certain point where your supply demand is equal. Similarly, if we assume that the starting point has a very low exchange rate, and the demand is high on this, but the supply is fixed, then there is an excess demand kind of a situation. This situation will push the exchange rate to go up. And as a result, you will reach at a point where the demand and the supply becomes equal to each other. And a certain level of exchange rate will be established which can be considered as the equilibrium exchange rate. Now, it is important to understand that there could be a number of factors which can help our demand curve to shift upward or downward. So, a quick recap of those factors. If your domestic interest rate increases, then the quantity demanded of your domestic assets will go up as well. And due to this, your exchange rate will also go up. A particular thing can be observed in the form of an upward shift in the demand curve. You can see that the demand curve we had earlier was blue. But your domestic interest rates will increase and your demand will go up. Similarly, if an foreign country's interest rate increases, then your demand will shift backwards. As a result, what will happen? Your exchange rate will decline. If expected domestic price level increases, then your demand curve will shift backward and your exchange rate will also fall. As you can see here, it is also falling. And if your expected trade barriers are expected to increase, then the quantity demanded of domestic assets will go up and as a result, the exchange rate will go up. And this can be represented by this upward movement and your demand curve has shifted upward. Now, expected import demand if you expect it to increase, then that will also cause the demand curve to shift backwards and the exchange rate will decline. If you understand the demand of export then the exchange rate will increase and your demand curve will shift upward. And if you are observing our expected productivity, that will go up. And this will also increase the expected demand and your exchange rate will go up. This can be observed as an increase in the demand. Upward shift in the demand curve and your exchange rate will increase and you can see here. Now we can see the effect of multiple factors on the exchange rate of a certain currency and this is how we can see that there would be shifts in the equilibrium also.