Chapter12 - Chapter 12 International Markets Foreign...

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Chapter 12 International Markets
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Foreign Exchange Rate Price of a unit of one currency in terms of another Market determined
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Demand increases as currency’s value decreases Drop in Currency value increases exports which increase amount of currency demanded Supply decreases as currency’s value decreases Drop in currency’s value decrease imports which decrease the amount of currency supplied (e.g. since not buying imports, no need to convert from Euros to Dollars)
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What determines supply and demand? Relative cost differences, tastes and preferences, barriers to trade, etc. Suppose a Japanese car costs 2 million yen in Japan Ignoring transportation costs and the like, what will be the cost of the car in the US? Exchange rate value of $1 $1 = 100 yen 2,000,000 yen = $20,000 100 yen/ $
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If dollar appreciates (increases in value relative to the yen), what happens to the cost of the Japanese car in the US? New Exchange rate
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Chapter12 - Chapter 12 International Markets Foreign...

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