ECN 211 L8 exchange rates and BOP_BB

ECN 211 L8 exchange rates and BOP_BB - ECN 211...

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ECN 211 Macroeconomic Principles L8: Exchange rates and the Balance of payments.
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Re-cap: Calculating a Price Index Year Price Converting Price Index (base year 2) Converting Price Index (base year 1) 1 $9 2 $10 3 $11 4 $12 5 $13
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Exchange rates ……. .The price of one currency ______________. Example: £1 sells for Define: “E” is the number of ______________________ required to purchase one unit of a foreign currency (British pounds). In the example above E is
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Exchange Rates and International Trade Nearly all countries have open economies (and have become more open) Open Economy … an economy that trades goods, services and financial assets with the rest of the world Exchange rates (and their fluctuations) can affect the the flows of exports and imports
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Question… If £1 sells for $2.1 Then how much does one dollar sell for? Answer $1
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Two main types of Exchange rate Regimes ____________ Exchange Rate A country fixes its exchange rate with another country. Will intervene in the foreign exchange market to ensure the exchange rate remains constant. ____________ Exchange rates A countries exchange rate with other countries is determined by market forces. The government will not intervene in the market. Note: Both imply exchange rate risk to some degree.
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Exchange Rates. An exchange rate can: appreciate (revaluation) depreciate (devaluation)
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Appreciation and Depreciation . If the exchange rate last year was $1.5:£1. But this year the exchange rate was $2: £1. What has happened to the dollar over the year? The dollar has _____________against the pound. _____________________________ Of course this must mean the ___________________________against the dollar!!
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Appreciation and Depreciation. If the exchange rate last year was $1 : £1.
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This note was uploaded on 04/02/2008 for the course ECN 221 taught by Professor Roberts during the Spring '07 term at ASU.

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ECN 211 L8 exchange rates and BOP_BB - ECN 211...

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