rohlf_lecture5 - Foreign exchange markets As countries...

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1 Foreign exchange markets As countries trade with each other they need to exchange currencies because they do not use the same monetary unit What determines the value of a country’s exchange rate? Many of the forces determining exchange rates can be analyzed in a simple supply and demand framework
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2 Exchange Rates An exchange rate is the price of one country’s currency in terms of another Example: 3 Argentine pesos trades for $1 Exchange rate can be quoted in 2 ways: 3 pesos/$1 = 3 (price of $1 in pesos) $1/3 pesos = 1/3 (price of 1 peso in $)
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3 Exchange rate regimes Flexible exchange rate regimes: market forces determine value of currency This is what we will study for the most part Fixed exchange rates: countries fix the value of their currencies and then undertake actions to maintain the value
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Exchange rates change over time Appreciation: increase in the value of the currency Depreciation: fall in value of the currency Example 1
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This note was uploaded on 04/08/2008 for the course ECONOMICS 101 taught by Professor Goodspeed during the Winter '08 term at CUNY Hunter.

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rohlf_lecture5 - Foreign exchange markets As countries...

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