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Foreign Exchange Rates: the value of one currency in relation to another currencyCan be expressed as currency vs. one dollar or as the dollar value for each unit of foreign
currencyExample: 1 US = .76 EUR
or 1 EUR = 1.31 US
Why is Foreign Exchange important?When people from one nation (United States) purchase a good (Home Entertainment System) from a company in another nation (Germany) the company wants to be paid in their currency.
In this case it is the responsibility of the consumer to convert the American dollar to the Euro.
Foreign Exchange Markets: Facilitate the buying and selling national currencies
Appreciation: when one currency increases in value relative to other currencies
Exports more expensive and imports cheaper
If the American dollar appreciates, we make more profit on exports, and have more purchasing power on imports.
Depreciation: when one currency depreciates in value relative to other currencies
Exports cheaper and imports more expensive
If the American dollar depreciates, we make less profit on exports, and have less purchasing power on imports.
The following tables chow the exchange rates for two different years:
Did the US dollar appreciate or depreciate in relation to the British pound?Who would be helped and who would be hurt?
The following tables chow the exchange rates for two different years:
Did the US dollar appreciate or depreciate in relation to the Swiss franc?Who would be helped and who would be hurt?
The following tables chow the exchange rates for two different years:
Did the dollar appreciate or depreciate in relation to the Mexican peso?Who would be helped and who would be hurt?
The following tables chow the exchange rates for two different years:
Did the dollar appreciate or depreciate in relation to the Thai baht?Who would be helped and who would be hurt?
These exist for three reasons: The “3 T’s”Trade- exchanges between governments, banks,
businesses, etc.
Tourism- exchange of currencies by vacationers
Travel- Airlines, cruise lines, business travel, students etc.
Each requires a record of payment and exchange
Balance of Payments: a record of all payments and receipts between residents, businesses and gov’ts of one country and those same groups in another country. Measured 2 ways:
Current account = $ value of all exports-minus-
importsIf positive, we have a surplusIf negative, we have a shortage
Income earned in other countries by American citizens
And foreign income earned in US
The difference between imported and exported products
Trade surplus: more exports than importsTrade deficit: more imports than exportsUS trade deficits began in the 1970’s with
the Oil Embargo and the dramatic rise in the price of oil
The last time the US had a trade surplus was 1981.
The US trade deficit was $46.6 billion in December 2014.
Capital account = Flow of money between nations.
This includes the investments in foreign nations and businesses made by American individuals and businesses.
Example: If a person from Brazil buys a US Savings Bond this is credited to the US Capital Account. But when Americans buy stock in a Japanese firm, this is a debit.
1. Dollar appreciates2. Dollar depreciates3. Balance of payments4. Current account5. Capital account6. Trade surplus7. Trade deficit8. Trade Barriers9. Tariffs
10. Embargos11. Quotas12. Subsidies13. Standards14. Free Trade15. Protectionism16. Most Favored Nation17. NAFTA18. European Union19. ASEAN
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