Lecture 11 Notes

Lecture 11 Notes - ECN 211 Macroeconomic Principles L11:...

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ECN 211 Macroeconomic Principles L11: Exchange rates and the Balance of Payments.
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Exchange rates ……. .The price of one currency in terms of another Example: £1 sells for $2.1 Define: “E” is the number of domestic units (dollars ) required to purchase one unit of a foreign currency (British pounds). In the example above E is 2.1
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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 sells for £1/$2.1=£0.48
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Two main types of Exchange rate Regimes Fixed 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 Flexible Exchange rates A countries exchange rate with other countries is
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This note was uploaded on 03/03/2010 for the course ECN 211 taught by Professor Kingston during the Spring '08 term at ASU.

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Lecture 11 Notes - ECN 211 Macroeconomic Principles L11:...

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