Exchange Rates and Exchange Rate Systems

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Presentation transcript:

Exchange Rates and Exchange Rate Systems Chapter 10 Exchange Rates and Exchange Rate Systems

Examples of Exchange Rates Copyright © 2005 Pearson Addison-Wesley. All rights reserved.

FIGURE 10.1 The Demand Curve for Foreign Exchange Copyright © 2005 Pearson Addison-Wesley. All rights reserved.

FIGURE 10.2 The Supply of Foreign Exchange Copyright © 2005 Pearson Addison-Wesley. All rights reserved.

FIGURE 10.3 Supply and Demand in the Foreign Exchange Market Copyright © 2005 Pearson Addison-Wesley. All rights reserved.

FIGURE 10.4 An Increase in Demand for British Pounds Copyright © 2005 Pearson Addison-Wesley. All rights reserved.

FIGURE 10.5 An Increase in the Supply of British Pounds Copyright © 2005 Pearson Addison-Wesley. All rights reserved.

Exchange Rates in the Long Run: Purchasing Power Parity Purchasing power parity: the equilibrium value of an exchange rate is at the level that allows a given amount of money to buy the same quantity of goods abroad as it will buy at home Copyright © 2005 Pearson Addison-Wesley. All rights reserved.

FIGURE 10.6 The Effects of an Increase in Home’s Interest Rate Copyright © 2005 Pearson Addison-Wesley. All rights reserved.

Determinants of an Exchange Rate: Summary Copyright © 2005 Pearson Addison-Wesley. All rights reserved.

FIGURE 10.7 Fixed Exchange Rates and Changes in Demand Copyright © 2005 Pearson Addison-Wesley. All rights reserved.

FIGURE 10.8 Selling Reserves of Pounds to Counter a Weakening Dollar Copyright © 2005 Pearson Addison-Wesley. All rights reserved.