Chapter 17Section 3

exchange rate: the value of a foreign nation’s currency in terms of the home nation’s currency

appreciation: an increase in the value of a currency

depreciation: a decrease in the value of a currency

foreign exchange market: the banks and other financial institutions that facilitate the buying and selling of foreign currencies

fixed exchange-rate system: a currency system in which governments try to keep the values of their currencies constant against one another

flexible exchange-rate system: a currency system that allows the exchange rate to be determined by supply and demand

trade surplus: the result of a nation exporting more than it imports

trade deficit: the result of a nation importing more than it exports

balance of trade: the relationship between a nation’s imports and its exports

Strong Dollar

As the dollar becomes stronger….

American exports decline

Weak Dollar

As the dollar becomes weaker…..

American exports rise

Some members of the European Union are phasing out their individual currencies in favor of a single currency, the euro.

International trade takes place whenever a good or service is produced in one country and sold in anotherTrade in other counties is more complex than trading in country because the worlds many currencies have their change value.

If you want to buy something in another country you would have to change your currency to that of the other countryOne USD or United States Dollar might be worth 9 pesos 115 Yen or 8 renminbiThe exchange rate enables one nations currency to be exchanged into another's.

If it is called a strong dollar it means that the value has increased and if it is referred as a weak dollar then its value has decreased.The amount of currencies all over the world increases and decreases on a daily basisIf a dollar increases or decreases it can affect another countries amount of imports and exports

If a countries currency appreciates then the dollar is worth more and they sell their products higher which makes exports to other countries lessIf a countries dollar depreciates then the dollar decreases and they sell products to other nations cheaper and imports to that country are likely to decrease

If an American company starts up a business in Japan then they get paid in Yen but then they have to pay American workers in dollars so they have to take that money and get it transferred into American dollars.

To help maintain the monetary trade there are over 2000 foreign exchange banks in the world.These banks are located in cities like London, Paris, Singapore, New York, Tokyo and other places all over the world. These places stay in close contact so that they can keep up with the market exchange

If the states still had different currencies then trade between each state would be very complex and difficult to do.Mostly because New York would have a high exchange rate and some place like Georgia would have a low exchange rate.

Governments intervene in economy so that they can maintain there currency value so that it wont go down.Government hope is that the money value stays within a certain range.

Governments buy other nations currencies so that they can keep the supply and demand of their own currency.

Governments will sometimes borrow money from other countries so that way they can help boost their own economy.Countries normally keep their rate at the same rate of the most central country.

In 1944 representatives from 44 countries met in Bretton woodsTheir goal was to make financial arrangements

The bretton woods conference resulted in the fixed exchange rateThe bretton woods conference also established the international monetary fund

Although fixed exchange-rate systems make it easier to trade, they require countries to maintain similar economic policies

In the 1960’s changes where constantly being made to the international trade system and world wide trade was growing rapidly

At that same time the war in Vietnam was causing inflation in the united states This made it difficult to rely on fixed exchange rate system

In 1972, the west German and Dutch governments abandoned the fixed exchange system

Although the flexible fixed exchange rate system works well some countries that whose economies are closely ties together like the advantages and benefits

This is what of of the European countries have doneThe EU has established a new currency

Nations conduct business mush like average people

One year a nation might sell more than it buys or vice versa

The united states trade deficit totaled $164 billionIn 1998 with the largest total amount owed to Japan ($64 billion) and owed over $57 billion to china

Explain why you need to know the exchange rate when you travel to a foreign country.

Explain what is meant by a strong or weak dollar?

What is the difference between fixed exchange rate system and flexible exchange rate system?

What is trade deficit?

What is the balance of trade?

What are the effects of a strong and weak dollar on exports?

What happens when a Nation Imports more than it Exports?

What was the Bretton Woods Conference?

Why are Fixed economy-rate systems easy to trade?

Why do companies set up in other countries