EXCHANGE RATES MK 26

EXCHANGE RATE The price at which one currency can be exchanged for another. e.g. $1= EUR 0.84 (stronger)

domestic stable foreign weak strong convertible common national (ex)change dollars convert dollars to Euros buy/sell ~ ~ rises/falls ~ floats ~fluctuates CURRENCY/CURRENCIES

Fixed Exchange Rate v. Floating Exchange Rate the exchange rate is set and maintained at same level by the government irrespective of the market forces The Bretton Woods Agreement (1944) set/determine an exchange rate maintain an exchange rate the exchange rate is allowed to fluctuate according to the market forces without the intervention of the central bank or the government 1970s inflation USA an exchage rate fluctuates

Devaluation/Revaluation official changes in the price of a currency in a fixed exchange rate system. ____________is when the price of the currency is officially decreased in a fixed exchange rate system. _____________is the official increase in the price of the currency within a fixed exchange rate system. devaluation revaluation

Appreciation and Depreciation floating exchange rates are determined by the ___________and ____________of that currency in the international market. when the value of the currency goes up as compared to other currency it is known as _______________. when the value of currency falls as compared to other currency it is known as _______________. when the _______________for a currency rises its price goes up and it becomes costlier depreciation appreciation demand supply demand

EXCHANGE RATES IN INTERNATIONAL TRADE S P I C E D STRONG POUND IMPORTS CHEAP EXPORTS DEAR VIDEO:

REARRANGE THE WORD ORDER. 1.makes / A stronger currency / a country's exports / more expensive and/ cheaper/ imports / in foreign markets. A stronger* currency makes a country's exports more expensive and imports cheaper in foreign markets. * it appreciates

2.A weaker currency/ a country's/ makes/ exports/ and its imports/ cheaper /more expensive/ in foreign markets. A weaker* currency makes a country's exports cheaper and its imports more expensive in foreign markets. * it depreciates

PURCHASING POWER PARITY the exchange rate adjusts so that an identical good in two different countries has the same price when expressed in the same currency Additional reading: The Big Mac Index (

READING MK, p.128 exchange rate (definition) 1944: fixed exchange rates/pegging against gold- gold convertibility adjustments of currencies (devaluation or revaluation) with IMF floating exchange rates (1971 USA): supply/demand PPP speculation hedging against currency fluctuations:futures government intervention in exchange rates COMPREHENSION / VOCABULARY

EXCHANGE RATES JEOPARDY

? The price at which one currency can be exchanged for another.

? A system in which the Federal Reserve could exchange gold for all the paper money.

? It means to “fix” a value of one currency against something else, e.g. the dollar was “…-ed” against gold.

? Exchange rates which are determined by supply and demand.

? Decrease in the value of a fixed exchange rate.

? Decrease in the value of a floating exchange rate.

? The value of a currency will fall.

? A person who trades currencies in the hope of making quick, large gains.

? About 95 %.

? An economic technique used to determine the relative values of two currencies, i.e. an identical good in two different countries has the same price when expressed in a different currency.

? It means to protect oneself from currency fluctuations, for example by way of futures contracts.

? By buying or selling their currency on the exchange markets.

? Because the central bank wants to lower its value.