Date post: | 22-Dec-2015 |
Category: |
Documents |
Upload: | aldous-daniels |
View: | 223 times |
Download: | 2 times |
EXCHANGE RATES
EXCHANGE RATE
The price at which one currency can be exchanged/traded for another
1. Actors in the Foreign Exchange Markethttp://www.youtube.com/watch?v=-qvrRRTBYAkt______________________g______________________s______________________i______________________s______________________2. Items affecting a currency rate:_________________________ law_______________interest rates_______________situation______________indicators: ______ _________
Purchasing power parity (PPP)
A rate of exchange calculated for two currencies so that the amount paid for a range of goods and services in both countries is the same
FOREIGN EXCHANGE RATES
Necessary for foreign trade/economic transaction
Determined by demand and supply (tourism, investment import/export trade in currencies)
A strong kuna is bad for exporters, good for importers
the increased kuna > more expensive exports > fewer sales
> fewer profits
the strong kuna > cheaper import of foreign products > cheaper import of raw materials
cheaper > the production costs lower
> must reduce domestic prices > lower profits
fewer exports more imports bad Balance of Payments
Demand – when we purchase foreign goods/services
Supply – when we export Market forces move the rate up or down to
balance the inflows and outflows of a currency
exchange rates affect output/inflation/foreign trade
governments try to regulate exchange markets to improve foreign
trade
devaluation = decrease the value of a currency in a fixed system
revaluation = increase the value of a currency in a fixed system
appreciation = increase in value over a period of time depreciation = fall in the value over a period of time
Convertible currency
= money of one country that can easily be changed into the money of another country, especially into a strong currency
(the dollar, the euro, the pound, the yen)
Pegged currencies
to peg = to fix against something (gold, another currency)
soft currencies (kuna, pesos…) must bepegged to hard currencies
EXCHANGE RATE SYSTEMS
1. The gold standard2. Freely floating exchange
rates
3. Managed exchange rates
1. THE GOLD STANDARD
the Bretton Woods agreement, 1944 fixed exchange rates defined in terms of gold and the US dollar currencies could only be adjusted by the IMF (devaluated/revaluated) abandoned in 1971 (not enough gold)
2. FLOATING EXCHANGE RATES
determined by supply and demand
reflect a country’s balance of payments and rate of inflation
currency speculation, the value of currencies is constantly fluctuating on foreign exchange markets
3. MANAGED EXCHANGE RATES
governments and central banks influence the level of their currencies when necessary
governments buy or sell in order to increase or
decrease the value of their currencies (use their foreign currency reserves)
http://www.youtube.com/watch?v=itYnQzrTCgE&feature=related
What is the Forex Market? http://www.youtube.com/watch?v=m_muYXqjNAk&feature=related
What happens with changing economies? Give an example with the kuna and the euro.
http://www.youtube.com/watch?v=RK-03L6XVWw&feature=related
ADD APPROPRIATE WORDS TO THESE SENTENCES:revaluation, floating, managed, speculators, convertibility, peg, central
1. Gold ________________ ended in the early 1970s.2. In fact we have ___________ floating exchange
rates, because governments and __________banks sometimes intervene on currency markets.
3. Another verb for fixing exchange rates against something else is to ________ them.
4. Increasing the value of an otherwise fixed exchange rate is called ___________________.
5. A currency can appreciate if lots _______________ buy it.
6. In most western countries there is a system of ___________exchange rates determined by supply and demand.
1. Gold convertibility ended in the early 1970s.2. In fact we have managed floating exchange
rates, because governments and central banks sometimes intervene on currency markets.
3. Another verb for fixing exchange rates against something else is to peg them.
4. Increasing the value of an otherwise fixed exchange rate is called revaluation.
5. A currency can appreciate if lots speculators buy it.
6. In most western countries there is a system of floating exchange rates determined by supply and demand.