20GottExchRateShow

20GottExchRateShow - Exchange Rates, Balance of Payments,...

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1 Exchange Rates, Balance of Payments, and International Debt Foreign Exchange Markets / Exchange Rates Appreciation and Depreciation of Currencies Floating and Fixed Exchange Rates Balance of Payments International Debt and Debt Service IMF Structural Adjustment Programs
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2 Floating Exchange Rates Floating exchange rate Determined by the demand and supply for a nation’s currency. Appreciation (“Strengthen”) Increase in price of a currency relative to foreign currencies. Depreciation (“Weaken”) Decrease in price of a currency relative to foreign currencies.
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3 120 110 100 90 0 200 300 400 500 100 Price (yen per dollar) What can cause changes in SS and DD? Floating exchange rates S of $ D for $ E Quantity of Dollars (millions per day)
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4 What can cause a change in DD and SS of a currency? Change in - relative incomes relative price levels (e.g., inflation) relative interest rates demand for specific goods and services demand for investments (stocks, bonds, DFI) speculation (very destabilizing)
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5 100 200 300 400 500 90 110 120 130 100 Quantity of DOLLARS (millions per day) Decrease in Demand S D 1 D 2 Price YEN per dollar E 2 E 1 What can cause a decrease in demand for $
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6 Changes (shift) in Demand of the Dollar Changes in income abroad Recession in Europe and Japan Changes in tastes Increase demand for U.S. products Changes in interest rates Interest rates in U.S. increase relative to Europe and Japan
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7 Changes (shift) in Supply of the Dollar Changes in income Recession in U.S. Changes in tastes Increase demand for fuel-efficient cars Changes in interest rates Interest rates in U.S. decrease relative to Europe and Japan
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8 Value of the dollar falls ( dollar depreciates ) Increase in the supply of dollars (and DD for yen) Japanese car imports more popular (fuel efficiency)
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9 100 200 300 400 500 90 110 120 130 100 Quantity of DOLLARS (millions per day) Price ( YEN per dollar) Increase in Supply S 1 S 2 E 1 E 2 D
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Foreign Exchange Market Which of the following will cause an increase in the demand for dollars
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20GottExchRateShow - Exchange Rates, Balance of Payments,...

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