1. Exchange Rates Currency Markets
SSEIN3: Explain how changes in exchange rates can have an impact on the purchasing power of groups in the United States and in other countries.
Define exchange rate as the price of one nation’s currency in terms of another nation’s currency.
Interpret changes in exchange rates, in regards to appreciation and depreciation of currency.
Explain why some groups benefit and others lose when exchange rates change.

2. Exchange Rates
The value of a foreign nation’s currency in terms of the home nation’s currency
Exchange rates fluctuate on a daily basis

3. Exchange Rates
Exchange rates: is the price of one country’s currency in terms of another country’s currency. Determining exchange rates: 1. Fixed exchange rate: an established price for a foreign currency that is tied to a stable currency of a developed country. 2. Floating (flexible) exchange rate: the forces of supply and demand establish the value of one country’s currency in terms of another country’s currency.

4. How are exchange rates expressed
One countries currency is equal to ??? Units of another countries currency.
Like this table:
1 USD/In USD $1
Argentine Peso
Australian Dollar
Bahraini Dinar

5. How are exchange rates expressed
$1USD= 8.73 Argentine Pesos
$1USD=1.28 Australian Dollar
$1USD=.377 Bahraini Dinar
Which currencies are stronger than the dollar and which are weaker?
1 USD/In USD $1
Argentine Peso
Australian Dollar
Bahraini Dinar

6. You can tell by: $1USD= .377 Bahraini Dinar
If $1USD gets you MORE THAN 1 unit of the other currency, they U.S. dollar is stronger.
I.E. $1USD= 8.73 Argentine pesos
And $1USD= 1.28 Australian Dollars
IF $1USD gets you LESS THAN 1 unit of the other currency, they U.S. dollar is weaker
$1USD= .377 Bahraini Dinar

7. Tuesday, October 02, 2007
1 USD
in USD
Australian Dollar
British Pound
2.0417
Canadian Dollar
1.0002
0.9998
Chinese Yuan
7.5093
Euro
1.4163
Hong Kong Dollar
7.7625
Indian Rupee
39.65
Japanese Yen
115.83
Mexican Peso
South African Rand
6.9091
South Korean Won
915.7
Swiss Franc
1.175
Downloaded from

8. Appreciation – an increase in value of a currency
“Strong”
Ex. Strong US dollar…
Increase imports
Decrease exports

9. Depreciation – a decrease in the value of a currency
“Weakening”
Ex. Weak US dollar…
Decrease imports
Increase exports

10. Calculating Exchange Rates
If converting to US dollars… Foreign Currency Foreign Currency per dollar See page 509

11. Practice
A new sweater in England costs £50. What is the cost in US dollars?
A dinner in France costs €25. What is the cost in US dollars?
A hotel room in Japan costs ¥20,000. What is the cost in US dollars?

12. What does “Strong” and “Weak” mean?
Change in the exchange rates Strong= More Valuable Weak= Less valuable

13. How do you identify if a currency is gaining or losing it’s strength
Change in the exchange rates 1. Currency appreciation: is the gain of value of a country’s currency with respect to one or more foreign currencies. A. Benefits consumers, but can hurt producers. 2. Currency Depreciation: When a nation’s currency loses value. A. Hurts consumers but benefits producers

14. How do exchange rates change?
Supply and demand for currencies can change the value for currencies.
Market for $USD
Value

15. For international trade, we will focus on the DEMAND for a currency
Exports and Imports can effect the demand for a currency
When a country’s exports are desired, they want to be paid in their own currency.
For example: If you sold your phone to a person in Mexico, would you want them to pay you in pesos?
OF COURSE NOT!! YOU WANT $USD!!!

16. THIS TAKES PLACE ON THE FOREIGN CURRENCY EXCHANGE MARKET
THE PESOS WILL BE TURNED INTO $$$$$$
EXAMPLE: YOU SOLD YOUR PHONE TO A PERSON IN MEXICO FOR $100.
If the exchange rate was $1 USD is equal to 10 PESOS or $1USD = 10 PESOS, how many PESOS would that $100 phone cost that person in Mexico?
CAN YOU FIGURE IT OUT?

17. THIS IS HOW WE DO IT How? 10 PESOS/$ X 100 = 1,000 pesos.
Answer: 1,000 pesos.
Which CURRENCY is more valuable?
The United States dollar is more valuable.
It takes 10 pesos to equal only 1 dollar

18. When currency values change, your $100 phone could change in terms of Pesos
LETS SEE WHAT HAPPENS IF THE MEXICAN PESO HAS GAINED VALUE
IF THERE WAS AN INCREASE IN DEMAND FOR THE PESO, THE PESO WOULD APPRECIATE IN VALUE
MARKET FOR PESOS
VALUE

19. CURRENCY APPRECIATION
LETS SAY THAT THE NEW EXCHANGE RATE BECAUSE OF THIS NEW DEMAND FOR THE PESO HAS CHANGED THE EXCHANGE RATE FROM $1USD = 10 PESOS
TO: $1 = 5 PESOS
LETS SAY A PERSON IN MEXICO COULD BUY YOUR PHONE(WHICH WAS MADE IN USA) FOR $100 OR A PHONE MADE IN MEXICO FOR 1000 PESOS
NOW HOW MUCH WOULD YOUR $100 PHONE COST IN PESOS?
WHICH PHONE SHOULD THE PERSON IN MEXICO PURCHASE??????

20. BECAUSE OF APPRECIATION…
$1USD = 5 PESOS
YOU STILL WANT TO RECEIVE $100 RIGHT?
YOUR PHONE DID COST 1,000 PESOS
BUT NOW……..
PHONE= 5 PESOS X 100 = 500 PESOS!!!!!
SO NOW THE PERSON IN MEXICO WOULD RATHER BUY YOUR PHONE FOR 500 PESOS RATHER THAN A PHONE MADE IN MEXICO FOR 1000 PESOS.

21. WHAT DOES THIS MEAN FOR PRODUCERS AND CONSUMERS?
BENEFIT-
IN MEXICO, THE CONSUMERS BENEFIT BECAUSE THEY HAVE ACCESS TO CHEAPER PRODUCTS FROM THE U.S. RATHER BUY A 500 PESO PHONE THAN A 1000 PESO PHONE
IN THE U.S., PRODUCERS BENEFIT BECAUSE THEIR EXPORTS ARE CHEAPER FOR OTHER COUNTRIES TO BUY. YOU RECEIVE YOUR $100 EITHER WAY

22. WHAT DOES THIS MEAN FOR PRODUCERS AND CONSUMERS?
WHO LOSES FROM THIS?????
IN MEXICO, THE PRODUCERS LOSE BECAUSE THEY HAVE TO COMPETE WITH CHEAPER AMERICAN IMPORTS AND MAY LOSE A SHARE OF THE MARKET
IN THE U.S. CONSUMERS WILL LOSE BECAUSE GOODS THEY USE TO PURCHASE FROM MEXICO WILL NOW BE MORE EXPENSIVE
WHAT???!!!?? WAIT!! WHY ARE MEXICAN PRODUCTS NOW MORE EXPENSIVE?

23. WHY ARE MEXICAN GOODS NOW MORE EXPENSIVE IN THE U.S.?
THE EXCHANGE RATE CHANGED
$1 WAS WORTH 10 PESOS
NOW $1 IS ONLY WORTH 5 PESOS
SO LETS CHANGE THE PERSPECTIVE
IF YOU WANTED TO BUY A BLANKET MADE IN MEXICO AND IT IS PRICED IN MEXICO AT 500 PESOS
IF THE EXCHANGE RATE WAS $1USD=10 PESOS
THE BLANKET WOULD COST $50 (500/10)
BUT IF THE EXCHANGE RATE WAS $1USD=5 PESOS
THE BLANKET WOULD COST $100 (500/5)

24. So what would happen if the US DOLLAR GAINED STRENGTH?
LETS LOOK AT OUR ORGINAL EXCHANGE RATE OF $1USD = 10 PESOS AND CHANGE IT TO
$1USD = 100 PESOS
YOUR $100 PHONE WOULD NOW COST 10,000 PESOS IN MEXICO
($100 x 100= 10,000)
BUT THE 500 PESO BLANKET MADE IN MEXICO WOULD NOW COST YOU $5 IN THE US.
(500 PESOS/100= $5)

25. WHO IS BENEFITS AND WHO LOSES?
IN THE U.S.
BENEFITS: CONSUMERS HAVE ACCESS TO CHEAPER GOODS
LOSES: PRODUCERS HAVE TO COMPETE WITH CHEAPER IMPORTS
IN MEXICO
BENEFITS: PRODUCERS CAN SELL THEIR PRODUCTS IN FOREIGN MARKETS EASIER
LOSES: CONSUMERS LOSE ACCESS TO CHEAPER PRODUCTS

26. HOW DO I DO CONVERSIONS? DIVIDE YOUR LAUNDRY
TRY TO US THE $1USD =? LIKE $1=2PESOS
If converting $USD to a foreign currency, multiply the amount in $USD TIMES EXCHANGE RATE
MULTIPLY YOUR BAGS
-If converting foreign currency to $USD, divide the amount of foreign currency by the EXCHANGE RATE
DIVIDE YOUR LAUNDRY

27. ACTIVITY 18 EXCHANGE RATES
TRY THESE
ACTIVITY 18
EXCHANGE RATES

28. How are Exchange rates effected by imports and exports
Trade Deficits(x-M) results in the $ losing value in foreign exchange markets
A trade Surplus (X-m) WOULD result in the dollar appreciating in value or becoming stronger.