fx - Foreign Exchange and Currencies Economics 71a Spring...

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Unformatted text preview: Foreign Exchange and Currencies Economics 71a Spring 2007 Mayo, Chapter 6 (skim) Lecture notes 2.6 International Money Flows Funds flow between countries Two basic reasons Trade flows Investment (capital) flows Central banks also intervene in these markets The Demand and Supply of Foreign Currency Example: U.S. ($) and France (euros) U.S. consumer buys French wine + demand for euros U.S. firm sells ipod to French consumer +supply for euros U.S. investor buys French stock +demand for euros U.S. firm sells stock to French investor +supply for euros Supply and Demand for Euros P = $/euro Q = euros D S The Demand and Supply of Foreign Currency Example: U.S. ($) and France (euros) U.S. consumer buys French wine + demand for euros ($/euro rises) U.S. firm sells ipod to French consumer +supply for euros ($/euro falls) U.S. investor buys French stock +demand for euros ($/euro rises) U.S. firm sells stock to French investor +supply for euros ($/euro falls) $/euro = exchange rate...
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fx - Foreign Exchange and Currencies Economics 71a Spring...

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