1. International Economics
Strong v. Weak Dollar

2. Interpreting Exchange Rates
Most exchange rates between currencies fluctuate based on supply and demand.
The terms appreciation and depreciation describe changes in the value of one currency in terms of another.
Appreciation refers to an increase in the value of a currency relative to another.
Depreciation refers to the decrease in value of one currency relative to another.

3. Strong v. Weak
The table shows the price of the U.S. dollar expressed in terms of other currencies for Year 1 and Year 2. In Year 1, a dollar cost .49 pounds. In Year 2, a dollar cost .52 pounds. Since the dollar was more expensive for people hold the British pounds in Year 2 than in Year 1, the dollar appreciated in the pound. The dollar became stronger.

4. Strong v. Weak
In Year 1, a dollar cost 5.17 Danish krone. In Year 2, a dollar cost krone. Since the dollar cost less for people holding Danish krone in Year 2 than in Year 1, the dollar depreciated against the krone. The dollar became weaker.

5. What does all this mean?
When a country’s currency appreciates against another currency, it means those who hold the appreciated (or stronger) currency can buy more of the other country’s currency.
If a country depreciates (becomes weaker), those who hold the depreciated currency can buy less of the other country’s currency.

6. What does all this mean?
Assume the United States and Japan are trading partners. Due to the popularity of Japanese Anime in the United States, people in the U.S. demand for yen because they need Japanese currency to buy Japanese goods.
As the demand for yen rises, the yen appreciates in the foreign exchange market. The higher price of yen will make Japanese goods more expensive for U.S. consumers and Japanese exports to the United States will decrease.
However, the higher value of the yen will allow people in Japan to import more goods, more cheaply from the United States.

7. What does all this mean?
Therefore, while the appreciation of the yen hurts Japanese exporters, U.S. exporters to Japan benefit from the increased Japanese consumption of U.S. goods.
U.S. tourists visiting Japan are harmed by the increased price of the yen, but Japanese tourists coming to the U.S are helped because they can buy more.

8. Weakening Dollar/Strengthening Euro

9. Weakening Euro/Strengthening Dollar

10. A Strong U.S. Dollar Means...

11. A Weak U.S. Dollar Means…

12. Effects of Changing Rates

13. Weak Dollar Who is helped by a weak dollar?
U.S. Producers – because they’re competing with higher priced imported goods & services
Foreign Consumers – because they can buy U.S. goods & services at a lower price
U.S. Exporters – because American goods & services become less expensive for foreign consumers

14. Weak Dollar Who is hurt by a weak dollar?
U.S. consumers – because the cost of foreign goods & services is more expensive
U.S. investors in foreign companies because it costs more
Foreign exporters – because their goods & services are more expensive

15. Strong Dollar Who is helped by a strong dollar?
U.S. consumers because the prices of foreign goods & services are less expensive
U.S. investors in foreign companies because the prices of foreign securities are lower
U.S. importers because they can sell foreign goods & services at a lower price

16. Strong Dollar Who is hurt by a strong dollar?
U.S. producers because they are competing against lower priced foreign goods & services
Foreign consumers because U.S. goods & services are more expensive
U.S. exporters because U.S. goods & services are more expensive

17. Practice
What might cause the value of the US dollar to appreciate in relationship to the Euro?
Increased demand for European products in the US
Increased demand for US products in Europe
Increases in the US money supply
High rates of inflation in the US