flexible or floating exchange rates (2)

Two main steps are involved : (1) With the pound rate more expensive , it will cost more to import British bikes ; and then our physical demand for them will fall off in the usual fashion (2) with the dollar now cheaper ,our goods will cost less to Europeans , and they will want to demand more of our export goods. (If we look at these two effects from both their viewpoint and our own ,we have something like the four-pronged action of Hume . but with certain important differences. Our whole domestic wage and cost level need not change , and neither need theirs . the changes in foreign exchange rate can itself directly bring about enhanced relative dearness and cheapness of export and import price levels.
America is curve comes from our desire for foreign exchange rate to buy import goods,to make tourist visits,to hire shipping and insurance services , to finance our troops abroad and our foreign-aid grants , to pay the dividends and interest we owe to foreign owners of our securities and property ; and also to finance long-term investment abroad by American firms or stock buyers , and short-term investment in foreign near-term bonds or saving accounts .