Exchange Rate1 - Exchange Rates Foreign exchange is the...

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Exchange Rates Foreign exchange is the money of another country. The exchange rate is the price of one country's currency in terms of another country's money. For example, say, $1 = 5.6415 French francs. Flexible exchange rates are determined by supply and demand in the foreign exchange market; fixed exchange rates are officially determined. system dollar rises in value dollar falls in value flexible appreciation depreciation fixed revaluation devaluation Uses of Foreign Exchange Markets spot vs. forward markets 1. clearing Foreign exchange markets allow people to end up holding the national currency they need to purchase goods and services. foreigners demand dollars to o buy U.S. goods and services o buy U.S. assets Americans sell dollars to o buy foreign goods and services o buy foreign assets 2. hedging Hedging refers to trying to reduce the risk from exchange rate fluctuations. You are fully hedged when you have neither a net asset nor a net liability position in an asset.
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