1. Chapter 5 Presentation 3 Exchange Rates

2. Exchange Rate The rate at which the currency of one country can be exchanged for the currency of another http://www.exchangerate.com/

3. FOREX Market = FE, FX, Foreign Exchange Where $ from one nation is exchanged for $ of another Over $3.2 trillion exchanged daily Used to convert $ for imports/exports or for speculation 24 hour market in major financial hubs- New York, Tokyo, London, Franfort

4. FOREX Cont’d When Americans buy imports, they add dollars to the FOREX market (increase supply) and take foreign currency out of the market This depreciates the dollar since there are now more dollars supplied in the FOREX The demand for foreign currency goes up

5. The Foreign Exchange Market Exchange Rates Dollar – Yen Market P Q Quantity of yen Dollar price of 1 yen.01 QeQe DyDy SySy Exchange Rate: $.01=¥1 G 5.1

6. Value of the Dollar Appreciation- the value of the dollar has increased and one can now buy more foreign goods (Imports rise, exports fall) Depreciation- the international value of the dollar has decreased and it takes more dollars to buy foreign goods (Imports fall, exports rise)

7. Dollar Price Dollar Price of Pounds is how many dollars it takes to buy one British Pound When the dollar price goes up (takes more dollars to buy 1 Pound), the dollar has depreciated and the international value of the dollar decreased

8. Trade Restrictions And Help 1. Tariffs- tax on imported goods 2. Import quotas- limit on imports 3. Non-tariff Barriers- difficult requirements and red tape 4. Export Subsidies- government lowers the production costs which helps to compete with rivals (ex- Airbus received funds from EU countries to compete with Boeing)

9. World Trade Organization (WTO) 149 nations as members The WTO oversees international trade agreement and rules on disputes between nations Pros- increased standard of living Cons- allows countries to avoid paying high domestic wages

10. Trade Bloc A group of countries having common identity, economic interests, and trade rules The nations lower or remove trade restrictions between members to allow free-trade

11. North American Free Trade Agreement (1993) A major trade bloc between US, Canada, and Mexico Free trade area between the 3 countries ***most critics feared that the agreement would allow the US to send jobs to Mexico for low wages Also would allow South Korea and others to put plants in Mexico and Canada

12. European Union (EU) Trade bloc of 25 European nations The Euro is the common currency used by 12 members---GB, Sweden, Denmark all maintained their currency