Lec24 - EXCHANGE RATES The price of one country's currency in terms of another country's currency Example 1 costs $2 $1 costs 0.50 Exchange rate

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EXCHANGE RATES The price of one country’s currency in terms of another country’s currency. Example: £ 1 costs $2. $1 costs £ 0.50 5 Exchange rate determines cost of imports and exports: US exports: fighter plane $3 million = £ 1.5 million in Britain. US imports: British sweater £ 10 = $20 in US. 8 Currency depreciates = price in terms of the other currency drops. One currency depreciates other currency appreciates Example: $1 costs £ 0.33 (down from £ 0.50) Dollar depreciates relative to the pound. This is equivalent to: £ 1 costs $3 (up from $2) Pound appreciates relative to the dollar. 11 Depreciation of a country’s currency helps its exports and makes its imports more expensive. US Exports: Fighter jet $3 million = £ 1 million (down from £ 1.5 million) US Imports: British sweater £ 10 = $30 (up from $20) 13 Depreciation of dollar helps US economy. Appreciation of dollar hurts US economy. 14
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This note was uploaded on 04/03/2008 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at University of California, Berkeley.

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Lec24 - EXCHANGE RATES The price of one country's currency in terms of another country's currency Example 1 costs $2 $1 costs 0.50 Exchange rate

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