Unit 5, Lesson 13 Currency Exchange AOF Business Economics Copyright © 2008–2011 National Academy Foundation. All rights reserved.

Currency is a type of commodity Currencies can be exchanged and purchased for an agreed-upon value, just like other commodities.

Like other commodities, currencies have markets In what ways are currency markets similar and different from the stock market? Currencies can be bought and sold in several ways, including: Interbank trading From banks Through brokers and traders

The exchange rate is the market value of a currency, and it reflects supply and demand Generally, the more a currency is in demand, the higher its value. If a currency is overvalued, are more or fewer people likely to buy it?

Many factors influence the demand for a currency Positive Stable government Low inflation Strong, stable economic growth Positive trade balance (exports exceed imports) Unstable government High inflation Slow or erratic economic growth Trade deficit (imports exceed exports ) Negative

Understanding currencies is important for businesses Businesses deal with currency exchange in many different ways: Purchase resources and labor in foreign currencies Sell products and services in foreign currencies Invest their earnings in foreign currencies Buying resources and labor Selling products Currency out Currency in

Business economists contribute to important decisions about currencies They help businesses forecast the values of the different currencies in which they trade They help make decisions about which markets to sell goods and services in They understand how costs vary to produce goods in different countries