chapter 29 international trade

chapter 29 international trade - CHAPTER 29 The World of...

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CHAPTER 29 The World of International Finance
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Chapter Twenty-Nine 2 of 19 Lecture Outline 1. How exchange rates are determined 2. How changes in demand and supply of currencies affect equilibrium exchange rates a. Factors that shift the demand curve for a currency b. Factors that shift the supply curve of a currency 3. How the price level affects the exchange rate: real exchange rates a. Impact on net exports b. Purchasing power parity 4. Impact of exchange rate changes on net exports 5. How governments influence the exchange rate: foreign exchange market intervention 6. Exchange rate systems a. Fixed exchange rate system b. Flexible exchange rate system FYR
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Chapter Twenty-Nine 3 of 19 What Are Exchange Rates? Exchange rate : The price at which currencies trade for one another in the foreign exchange market. Appreciation : an increase in the value of a currency relative to the currency of another nation. Depreciation : a reduction in the value of a currency relative to the currency of another nation. Fluctuations in the exchange rate can have a huge impact on what countries import, export and the overall trade balance.
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Chapter Twenty-Nine 4 of 19 If a watch sells for 300 Swiss francs and the If a watch sells for 300 Swiss francs and the exchange rate between francs and dollars is 2 exchange rate between francs and dollars is 2 francs per dollar, the watch would cost you francs per dollar, the watch would cost you $150: $150: 300 francs/2 francs per dollar = $150 If the exchange rate is 3 francs per dollar, the watch would cost only $100.
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Chapter Twenty-Nine 5 of 19 How Demand and Supply Determine Exchange Rates As francs become cheaper, total spending on Swiss goods and assets will increase. The supply curve is upward-
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chapter 29 international trade - CHAPTER 29 The World of...

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