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Unformatted text preview: 11: exchange rates risk= risk value of currency will change people can hedge somewhat by holding (selling) futures contracts 14: eP- price of American goods in EuropeKNOW the formula on this slide 15: example form slide-- .81150/100=E=12 16: real exchange rate and nominal exchange rate are directly related 17: looks at trade with out most important trading partners 22: PPPlong run behavior of exchange rates-Price of traded goods should be the same everywhere o Example: $1 U.S. should cost Euro 24: not always best because lost money 25: P*%= rate of inflation in Europe 26: countries with higher inflation rates values of currency will depreciate (all other things being equal) discussion presumes floating exchange rates...
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- Spring '08
- Monetary Policy