1. Chapter 17.3 Notes Financing & Trade Deficit

2. I.When countries trade, why was it hard to pay each other? A. Because each country has its own currency/ $ B. Foreign Exchange Rate- created to convert different types of money.

3. 1 foreign currency 1 dollar in Country in dollars foreign currency Mexico.09 cents 10.96 pesos Euro 1.36 dollars.74 euros Japan 118.47 dollars 118.47. yen A. How much is 1 Mexican Peso worth in the U.S.? B. I have 10 Japan. Yen. How much in U.S. dollars do I have? C. I have 1 Euro. I want to buy U.S. gum costing.95 cents. Do I have enough money?

4. II. 2 types of International Exchange Rates A. Fixed Exchange Rates- when exch. rate was set by value of money in gold. Not used today. 1. Ex. $1 = 2 ounces of gold 3 British pounds = 2 ounces of gold a) Thus, $1 = 3 B.P. B. Flexible/ Floating Exchange Rate- when exch. Rate is set by value of each others money according to the S&D of each currency

5. III. Trade Deficit A. Occurs when balance of payments are not equal- country A sells more stuff to country B, then Country B sells to country A

6. 1. Ex. in 2005: China bought from U.S.=200 B U.S. bought from China= 500 B a. What is the trade deficit? B. Why are trade deficits bad? 1. Money leaves the country 2. Jobs are lost 3. Exchange Rate goes down