ECONOMICS UNIT #4 INTERNATIONAL ECONOMICS https://www. youtube Exchange Rates

www.exchangerate.com

EXCHANGE RATES Exchange rate-The value of a foreign currency in terms of the home nation’s currency Fixed exchange rates-the currency is held constant against another currency Floating/flexible exchange rates-allows the value of the currency to be established by supply and demand

appreciation-an increase in a currency’s value depreciation-a decrease in a currency’s value

When a country’s currency value rises against another currency that currency has appreciated. If the country’s currency value falls against another currency, it has depreciated.

For example, if asked how much a U. S For example, if asked how much a U.S. dollar costs in yen- it takes 114.69 yen to buy one dollar. If asked how many U.S. dollars it takes to purchase a Thai baht- it takes three cents or .03 of a dollar to buy a baht. If asked how many pounds it would take to buy a $10 meal in the U.S., multiply .49 times $10 and say that it will take 4.90 pounds to purchase the meal. If asked how many dollars it takes to buy a 15 euro train ticket, take $1.44 times 15 Euros for a total of $21.60 for the train ticket.

Foreign unit in dollars Dollar in foreign units Exchange Rate Table Country (currency) Foreign unit in dollars Dollar in foreign units Pokemon .1 10 Wonderland .05 20 Neverland 2 .50 Foreign unit in dollars=How many US dollars it takes to get one unit of their money Dollar in foreign units=How much of their money it takes to get one US dollar

Flexible Exchange Rates Determinants of exchange rates Factors that shift demand/supply Changes in tastes Relative income changes Relative price-level changes Relative interest rates Relative expected returns on assets Speculation 38-10

Fill in the missing currency figures Country (currency) Foreign unit in dollars Dollar in foreign units Australia (dollar) .9369 Hong Kong (dollar) 7.7813 Israel (sheqel) .2733 Russia (ruble) 24.0092 Saudi Arabia (riyal) .2667

Assume that $2=1 British pound How much would a 4 pound lunch cost in dollars? How much would a 10,000 pound car cost in dollars? How much would a 200,000 pound house cost in dollars? How much would a $50 shirt cost in pounds? How much would a $10,000 car cost in pounds? How much would a $250,000 house cost in pounds?

Yen price of one $ S 200 D Quantity of $ State the exchange rate two ways. How much would a $10 meal cost in yen? How much would a 1,600 yen movie ticket cost in $? Suppose that demand for the $ increased. Which would appreciate: dollar or yen? Suppose that demand for the $ decreased. Which would depreciate: dollar or yen?

6. Suppose the dollar appreciates against the yen. A. Give one group of Americans who would benefit from this. B. Give one group of Americans who would be affected negatively by this. C. Give one group of Japanese who would benefit from this. D. Give one group of Japanese who would be affected negatively by this.

7-10. Fill in the missing figures Country (currency) Foreign unit in dollars Dollar in foreign units Britain (pound) .656 Europe (euro) 1.366 Mexico (peso) 12.76 Japan (yen) .011

11. Suppose European banks offer higher interest rates for savings accounts than the American banks. What would you expect to happen to the Euro? 12. Suppose Britain has 5% inflation but the US only has 1% inflation. What would you expect to happen to the British pound?