You can analyze changes in foreign exchange rates by using supply and demand diagrams. Construct an example for the \($/£\) exchange rate wherein the dollar appreciates relative to the pound. Carefully label your diagram and have the initial exchange rate equal to 1.60. What might cause the supply and/ or demand curve to move in the manner illustrated (what are the underlying reasons for exchange rate movements)? Then, indicate what sort of central bank intervention would be necessary to prevent the exchange rate from moving away from the initial equilibrium.