Exchange Rates - Weebly



Exchange Rates

What is an exchange rate? The price of one nation’s currency in terms of another nation’s currency

Change currency:

*If you are given the US dollar amount and need to change to foreign currency, multiply

*If you are given the foreign currency and need to change to US dollar, divide

Value of currency: Depends on supply and demand for that currency

Appreciate – to increase in value(price) – called strong

Depreciate – to decrease in value (price) – called weak

Value of currency impacts exports:

When more of your own money is required to purchase an item, it seems expensive to you, so you demand less exports from that country

This can impact a country’s balance of trade

*Positive balance of trade = more exports than imports (trade surplus)

*Negative balance of trade = more imports than exports (trade deficit)

*Balance of payments – a comparison of all the transactions of a country = more payments than money received, negative balance of payments; more money received than payments, positive balance of payments

Summarize the following information:

An exchange rate is the amount of one country’s currency that is equal to one unit of another country’s currency

Exchange rates can be expressed two ways:

If 1 US dollar equals 2 Dutch guilders:

1. the exchange rate is 2 guilders per dollar

2. the exchange rate is 1/2 dollar ($.50) per guilder

If 1 US dollar is equal to 5 French francs:

1. the exchange rate is 5 francs per dollar

2. the exchange rate is 1/5 dollar($.20) per franc

Figure two ways: You want to exchange dollars for Japanese yen. Your bank gives you 100 yen for each dollar

1.

2.

Read the article, Dollar Doldrums. Discuss.

Use the consultant research to answer each of the following questions.

1. Why would people in one country want another country’s currency? (3 reasons)

2. Where can you find information about what exchange rates are today?

3. Explain a fixed exchange rate.

4. Explain a floating or flexible exchange rate.

5. Does the exchange rate for the dollar change very often? EXPLAIN.

6. What is the role of gold in foreign exchange transactions?

7. Is the dollar backed by a fixed amount of gold?

8. Explain a “strong” dollar.

9. Explain a “weak” dollar.

10. Give examples of Americans who would benefit from a strong dollar.

11. Give examples of Americans who would be hurt by a strong dollar.

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