Econ Reading 9 - Econ103 – Macroeconomic Principles Fall...

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Unformatted text preview: Econ103 – Macroeconomic Principles - Fall 2010 – Professor Werner Baer Reading 9 – p.1/2 Reading 9: Changes in Exchange Rates and their effects on Imports and Exports Example : Let's deal with the US and the UK. Now, we have 4 players, namely, US importers, US exporters, UK importers, and UK exporters. The exchange rate is the price of one currency in terms of another. For instance, if it takes $4 to buy £1, then for 1$, you can get £0.25. So, the price of a British Pound is $4 and the price of a US Dollar is £0.25. The concept of the exchange rates is explained in detail in the book (make sure you read the section on exchange rates in Chapter 17). Also, in the book, read about the concepts of - appreciation : increase in the price of a currency measured [example: appreciation of the dollar is when the price of 1 dollar increases from 90 to 100 yens] - depreciation (or devaluation ): decrease in the price of a currency [example: depreciation of the dollar is when the price of 1 dollar decreases from 120 to 115 yens] Changes in Demand and Supply of a currency: In the graphs above, the initial situation shows the exchange market in the equilibrium at $4 per £1 (or...
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This note was uploaded on 03/10/2011 for the course ECON 103 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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Econ Reading 9 - Econ103 – Macroeconomic Principles Fall...

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