Foreign Exchange Market.notebook
Warm Up:
1. Assume that real interest rates increase significantly in
Brazil. How will this impact the financial account balance?
2. China exports $10 million worth of products to
Argentina. If Argentina's current account balance with
China was initially zero, how will it be affected by the
transaction?
April 14, 2015
What is an exchange rate?
The amount of one country's currency that is equal to one unit of another country's currency.
How is exchange rate determined?
Since 1973, most countries have had FLEXIBLE OR FLOATING exchange rates which are based on supply and demand.
Apr 14­3:00 PM
Mar 11­4:30 PM
How Does It Work?
Foreign Exchange Market
Germany
United States
A currency is
WEAKER than
another if one unit
of that currency
purchases LESS
than one unit of
another currency.
=
Mar 11­4:35 PM
A currency is
STRONGER than
other if one unit
of currency
purchase MORE
than one unit of
another currency.
=
Mar 15­12:52 PM
Foreign Exchange Market.notebook
April 14, 2015
Reading Exchange Rate Tables:
If someone from Japan traveled to the United States with 1000 yen, how many USD would they be able to purchase?
American dollars
1 Japanese yen
in Japanese yen
0.0122179
81.8469 If I were to go to Brazil $1,000, how many Brazilian Reals would I be able to purchase?
American Dollar
1 Brazilian Real
in Brazilian Reals
0.496440
2.014344
Is the dollar stronger or weaker than the Japanese yen?
Is the dollar stronger or weaker than the real?
Mar 15­12:41 PM
Mar 15­12:38 PM
Activity:
If someone from Mexico traveled to the United States with 1000 pesos, how many USD would they be able to purchase?
American dollars
1 Mexican Peso
in Mexican pesos
0.080934
12.355718
Is the dollar stronger or weaker than the Mexican peso?
Mar 15­12:41 PM
in US Dollars
US dollar in
foreign currency
Colombian
Peso
0.00052 1930.50
Russian
Rouble
0.02814
35.531
Bahraini
Dinar
2.6596
0.37600
1. One USD = ___________ Bahraini Dinar
2. One Russian Rouble = ______________ USD
3. One USD = ___________ Colombian Pesos
4. Classify each currency as stronger or weaker than the USD.
Apr 8­10:13 AM
Foreign Exchange Market.notebook
What do exchange rates mean?
If the dollar gains or appreciates...
it purchases more foreign currency than it did before
If the dollar falls or depreciates...
it purchases less of a foreign currency than it did before
Mar 11­4:32 PM
When the dollar is weaker than
another currency (or depreciating):
US Consumers:
Foreign Producers/Exporters:
US Producers/Exporters:
Foreign Consumers:
Mar 19­1:10 PM
April 14, 2015
When the dollar is stronger than another currency (or is appreciating against another currency):
Foreign
Producers/Exporters:
US Consumers:
US Producers/Exporters:
Foreign Consumers:
Mar 19­1:09 PM
How are different groups of people
affected when the US dollar
appreciates or depreciates in value?
Mar 16­8:56 AM
Foreign Exchange Market.notebook
Making Generalizations
Who BENEFITS when the dollar appreciaties?
April 14, 2015
Who BENEFITS when the dollar depreciates?
Who LOSES when the dollar appreciates?
Who LOSES when the dollar depreciates?
Mar 11­4:41 PM
Mar 19­1:04 PM
Mar 11­4:41 PM