Economics 101Chapter07

Economics 101Chapter07 - 1 Objectives for Chapter 7 The...

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Objectives for Chapter 7: The Foreign Exchange and Stock Markets At the end of Chapter 7, you will be able to: 1. Define "foreign exchange market" ? Define "exchange rate" ? 2. Explain is the relation between the demand for foreign exchange and the supply of dollars? 3. Name and explain are the factors that affect the demand for foreign exchange ? (Review the factors that affect the demand for any product) 4. Define the terms "export" and "import" . 5. Define "portfolio investment" and "foreign direct investment" ? 6. Name and explain the factors that affect the supply of foreign exchange ? 7. Define "appreciation" and "depreciation" of a currency? 8. Explain the effects of appreciation (or depreciation) of the American dollar on American exports and imports? 9. Explain what will result in the foreign exchange market if interest rates rise in the United States more than they rise abroad. Use this analysis to explain the causes of the dollar appreciation from 1980-1985. 10. Explain what will result in the foreign exchange market if inflation rates are higher in the United States than in the countries with whom we trade. 11. Explain what will result in the foreign exchange market if income rises faster in the United States than in Japan. 12. Explain the difference between a “sole proprietorship”, a “partnership”, and a “corporation” as well as the advantages and disadvantages of each of these types of organization. 13. Explain the difference between a public corporation” and a “private corporation” . 14. Explain what affects the demand for stocks in general and what affects the demand for the stock of a particular company. 15. Explain what each of the following is as well as the advantages and disadvantages of each: savings account, CD, corporate security, and Treasury (government) security. 16. Explain what is meant by liquidity . 1
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17. Explain the difference between a “bill”, a “note”, and a “bond” . 18. Explain the relation between the price of a security and the interest rate on it. 19. Explain the relation between the interest rate paid by a security and expected inflation. 20. Explain what a mutual fund is. Explain what a money market fund” is. Explain the advantages and disadvantages of mutual funds. 21. Explain the advantages and the disadvantages of saving in the form of housing. 22. Explain what determines the value of a share of stock. 23. Explain what is meant by “dividends”, “retained earnings”, and “capital gains” . 24. Explain the difference between an “investor” and a “trader” . 25. Name and explain the four factors to consider in deciding how you should save. 26. Explain why it is very unlikely that one can “beat the stock market”. 2
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Chapter 7 The Foreign Exchange and Stock Markets (latest revision May 2006) We saw in Chapter 6 that a market is a place where buyers come to buy and where sellers come to sell. The foreign exchange market is a place where buyers come to buy and sellers come to sell foreign monies , such as Mexican Pesos, Japanese Yen, British Pounds, European Euros, Canadian Dollars, and so forth.
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