Foreign Exchange Market

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SWBAT:  Explain how a foreign exchange market functions Copyright © Texas Education Agency, All rights reserved. 3

Build Global Business Vocabulary Use your International Business book or an online dictionary to define the following words. Then, find a digital image or draw an image that represents your understanding of the vocabulary word. o Currency o Foreign Exchange o Foreign Exchange Market o Exchange Rate o Floating Exchange Rate o Exchange Controls o International Monetary Fund Copyright © Texas Education Agency, All rights reserved. 4

Foreign Exchange Scenario: You are on vacation in Mexico and want to eat dinner at a restaurant. How will you pay for your meal? Does a peso = the same value as a U.S. dollar? Why not? Scenario: Now imagine you are a business owner in the U.S. and you make and sell cell phone covers. You just received a large order from a company in Japan. Will you accept payment in yen? If yes, is the yen worth the same amount as the U.S. dollar? If not, how will the Japanese company pay you? These two scenarios should show you why there is a need for a foreign exchange market. Can you think of any other times there would be a need to exchange currencies with another country? Copyright © Texas Education Agency, All rights reserved. 5

Exchange Rates Activity CountryCurrencyImageCurrent Exchange Rate Units per U.S. Dollar Directions: Use the Internet to research current exchange rates for currencies in five different countries; use a currency converter to convert units per U.S dollar, and fill in the chart below. Copyright © Texas Education Agency, All rights reserved. 6

Foreign Exchange Market FOREX What do you know about the Stock Market? What is traded on the Stock Market? FOREX: Market where currencies are traded Four Major Currencies Traded: EUR/USD USD/JPY GBP/USD USD/CHF Why do you think these are the four major currencies traded on the FOREX? Copyright © Texas Education Agency, All rights reserved. 7

Foreign Exchange Controls Purpose: Maintain the value of a nation’s currency Control Types: National  Fixed Exchange Rate  Limits on Amount and Cost of Currency  Limit Amount of Currency Leaving the Country International  World Bank  International Monetary Fund Copyright © Texas Education Agency, All rights reserved. 8

IMF  International Monetary Fund Click the link for a short video from the IMF website:  Students- As you watch the video, identify three facts about the IMF. Goal: Promote economic cooperation by maintaining an orderly system of world trade and exchange rates.  Analyze Economic Situations  Suggest Economic Policies  Provide Loans Copyright © Texas Education Agency, All rights reserved. 9

Foreign Exchange Group Project Directions: Create a group of five colleagues. Divide the information pages to research. Together, build a presentation to teach your classmates about the IMF and its role in how the foreign exchange market functions globally. Use the rubric to guide you. Your presentation must include a slide for the following information pages about the IMF. Each page must have three key ideas and at least one image representing the information. Overview History Organizations and Finances Governance Our Work Case Study : Choose one country the IMF has given a loan to and explain how this has impacted their economy and trade in the global market. Foreign Exchange Market: Write a paragraph explaining the answers to the following questions. (Hint: Use your notes.)What are the elements important in the function of the Foreign Exchange Market? What role does the IMF play in how the Foreign Exchange Market functions? Why is the Foreign Exchange Market important in a global society? Copyright © Texas Education Agency, All rights reserved. 10