Macro Chapter 9 Notes.docx

Macro Chapter 9 Notes.docx - Chapter 9 Notes Foreign...

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Chapter 9 Notes Foreign Exchange Market To buy goods and services produced in another country we need money of that country. Foreign bank notes, coins, and bank deposits are called foreign currency. We get foreign currency in the foreign exchange market. Trading Currencies We buy foreign currencies and buy Canadian dollars in the foreign exchange market. The foreign exchange market is the market in which the currency of one country is exchanged for the currency of another. Exchange Rates Foreign exchange rate – the price at which one currency exchanges for another. Currency depreciation – a fall in the value of one currency in terms of another currency. Currency appreciation – a rise in value of one currency in terms of another currency. An Exchange Rate is a Price An exchange rate is the price—the price of one currency in terms of another. Like all prices, an exchange rate is determined in a market— the foreign exchange market. The Canadian dollar is demanded and supplied by thousands of traders every hour of every day. With many traders and no restrictions, the foreign exchange market is a competitive market. Demand for One Money is the Supply of Another Money Factors that influence the demand for Canadian dollars also influence the supply of Canadian dollars, E.U. euros, U.K. pounds, and Japanese yen. Factors that influence the demand for other countries money also influence the supply of Canadian dollars. Demand in the Foreign Exchange Market The quantity of Canadian dollars that traders plan to buy in the foreign exchange market during a given period depends on: 1. The exchange rates 2. World demand for Canadian exports 3. Interest rates in the U.S. and other countries 4. The expected future exchange rate The Law of Demand for Foreign Exchange
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  • Winter '08
  • Noordeh
  • Exchange Rate, Foreign exchange market, United States dollar, Law of Demand for Foreign Exchange

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