1. AOF Business in a Global Economy
Unit 4, Lesson 7
Currency Exchange Fluctuations
Copyright © 2009–2012 National Academy Foundation. All rights reserved.

2. A currency’s value is determined by supply and demand
Floating Exchange Rate: allowed to vary against other currencies as determined by market forces
Fixed Exchange Rate: pegged to another currency, group of currencies, or item of value such as gold
What might the benefits of a fixed exchange rate be?
Copyright © 2009–2011 National Academy Foundation. All rights reserved.

3. Stable politics tend to lead to stable currencies
Political events that affect currency values can be:
Internalin the country
Regionalin the neighboring area
Internationalall over the globe
5 Most Traded Currencies 1
US dollar 2
Euro 3
Japanese yen 4
British pound 5
Swiss franc
Copyright © 2009–2011 National Academy Foundation. All rights reserved.

4. Economic policies and trends influence exchange rates
Economic Policy:
Interest rates
Fiscal policy
Economic Conditions:
Budget deficit or surplus
Balance of trade
Inflation rates
GDP/growth rate
How might a nation’s GDP influence the value of its currency?
Copyright © 2009–2011 National Academy Foundation. All rights reserved.

5. Market psychology also affects exchange rates
FX traders are human beings, and are affected by emotions and rumors.
In unstable times, traders seek stable currencies.
Rumors and expectations can raise or lower values.
Which sort of research would you do if you were an FX trader?
Copyright © 2009–2011 National Academy Foundation. All rights reserved.

6. Governments care about exchange rates
Exchange rates affect a country’s:
Price of imported goods
Tourism
Long-term business contracts
Trade balance
STRONG CURRENCY
WEAK CURRENCY
Imports up, exports down
Exports up, imports down
Tourism down
Tourism up
Foreign purchasing power up
Foreign purchasing power down
Risk of trade deficit
Risk of trade surplus
Copyright © 2009–2011 National Academy Foundation. All rights reserved.

7. Successful FX traders stay informed
Exchange rates are affected by many variable but often foreseeable factors, such as:
Continually changing economic trends
Changes in governments or governmental policies
The expectations of traders
Current events
What are some other factors that might affect currency exchange rates?