PowerPoint Presentation

[S&D determine currency strengths]JapanUnited States

Exchange of Currencies[What if the U.S. wants more Mazdas from Japan?]

[S&D determine currency strengths]EuropeUnited States

Exchange of Currencies

[What if the Europeans want more American cars?]

Japanese TV cost Y115,0001. A. $1 = Y140 [TV would cost $821.43] B. $1 = 80 [TV would cost $1437.50] C. $1 = 107 [TV would cost $1074.77]

2. A. 1 Euro = $1.34 (Today) B. 1 Euro = 86 cents [in 2002] C. 1 Euro = $1.51 [in 2008]

3. $1=1.10 Loonies

4. A. $1 = 11,764 rupiahs [Today] B. $1 = 8417 rupiahs [in 2011]

5. A. $1 = P13.24 [Today] B. $1 = P11.47 [in 2011]

6. A. TODAY $1 = W1035.41 B. 2009 $1 = W1256.60 Appreciation/Depreciation History

And $1 = 20,918 Vietnam dongs

Indonesian RupiahMexican PesoKorean Won

D$1.50$1.00 .50 EqualsEqualsDollar priceof another currency[yen]increases [$1 to $1.50]Internationalvalue of dollarfalls (dollardepreciates)Exports increaseImports decreaseDollar priceof anotherCurrency[yen]decreases[$1 to .50]Internationalvalue of dollar rises (dollarappreciates)Imports increaseExports decreaseCurrency Appreciation and Depreciation# of YenDAS

THE FOREIGN EXCHANGE MARKETD2D3

AppreciationDepreciation

1. Increase in Taste

2. Increase Interest Rates

3. Decrease in PL

4. Decrease in Income 1. Decrease in Taste

2. Decrease Interest Rates

3. Increase in PL

4. Increase in Income

Therefore, it takes fewerpennies, so the dollar is stronger [$ price decreases]Therefore, it takes morepennies, so the dollar is weaker. [$ price increases]

Y50 $s looking for Y The Market for DollarsQuantity of DollarsYen Price of Dollar0Y100PQES$D1$Exchange Rate: $1 = 100DAAD

Appreciation of the DollarIncrease in taste for U.S. goodsIncrease in U.S. Interest RatesDecrease in U.S. Price LevelDecrease in U.S. Growth RateDepreciation of DollarDecrease in TasteDecrease in In. RatesIncrease Price LevelIncrease Growth Rate

D2

Y150

E1E2E3

Decrease in U.S. Currency PriceIncrease in Currency Price

D3YendepreciatesYenappreciates Y looking for $sFOREIGN EXCHANGE MARKET

Graph Both Countries1. Show how an increase in tastefor Japanese cars would affect themarket for the Yen and the Dollar.# of Yen# of Dollars2. How would an increase in Mexicosreal interest rate affect the value of the Peso and the value of the Euro?3. How would high inflation in SouthKorea affect the market for the Won and the Dollar?4. How would a U.S. economic expansion affect the value of the Dollar and the value of the Yen?e1e1e1e1e1e1e1e1# of Pesos# of Euros# of Won# of Dollars# of Dollars# of YenDDDDDDDDSSSSSSSSAppreciateDepreciateAppreciateDepreciateDepreciateAppreciateDepreciateAppreciateD2S2D2S2S2S2D2e2e2e2e2e2e2e2e2D2

Yen Price of $$ Price of YenEuro Price of pesoPeso Price of Euro$ Price of WonWon Price of $Yen Price of $$ Price of Yen

4. If Malaysias price level is decreasing faster than that of Brazil, the Malaysian ringgit will (apprec/deprec) & Malaysias exports to Brazil will (increase/decrease).5. If growth rate is less rapid in Djibouti than in Swaiziland, then the Djibouti bouti will (appreciate/depreciate) and Djiboutis exports will (increase/decrease).6. If the Euro price of the S. Korean won decreases, the Euro has (apprec/deprec) & European exports to Korea will (incr/decr).7. If interest rates are increasing faster in Zambia than in Spain, the Zambian Kwachi will (appreciate /depreciate) and Zambias imports from Spain will (increase/decrease). 1. If more Thai bahts are required to buy a dollar, then the baht has (appreciated/depreciated), & Thai exports to the U.S. should (increase/decrease).2. If Latvias demand for U.S. Fuzzy Wuzzies decrease, then Latvias Lat will (apprec/deprec) & Latvias imports from the U.S. will (increase/decrease).3. If interest rates are decreasing faster in S.Korea[4%] than in Cuba[8%], then the Korean won will (appr/depr) & Koreas exports to Cuba will (increase/decrease).

Practice Quiz 1

1. If Korea buys 2 million fewer American autos the dollar would (appreciate/depreciate) & our exports to Korea would (increase/decrease). 2. If U.S. interest rates decrease faster than Haitis, the dollar would (appreciate/depreciate) & our imports would (increase/decrease). 3. If prices are dropping more in Mexico than in the U.S., the peso will (appreciate/depreciate) and Mexicos exports will (increase/decrease).4. If the U.S. growth rate is faster than that of China, the dollar will (appreciate/depreciate) and U.S. exports to China will (increase/decrease).5. If the dollar price of the renminbi increases, the dollar has (appreciated/depreciated) and our imports from China will (increase/decrease).6. If Zimbabwe wants to buy 3 million American Fuzzy Wuzzys, the dollar (appreciates/depreciates) and our imports from Zimbabwe should (increase/decrease).7. If the bouti price of the dollar increases the bouti will (appreciate/depreciate) and their exports will (increase/decrease).

Practice Quiz 2

1. If Djibouti buys 4 mil. more U.S. Fuzzy Wuzzies the dollar would (appreciate/depreciate) & our exports to Djibouti would (increase/decrease). 2. If U.S. interest rates are increasing faster than Cubas, the dollar would (appr/depr) & our imports from Cuba would (incr/decr). 3. If prices are increasing more in Canada than in the U.S., the Canadian loonie will (appr/depr) and Canadas exports will (increase/decrease).4. If the U.S. growth rate is slower than that of China, the dollar will (appreciate/depreciate) and U.S. exports to China will (increase/decrease).5. If the dollar price of the renminbi decreases, the dollar has (appreciated/depreciated) and our imports from China will (increase/decrease).6. If the Congo wants to buy 2 million American Piggy Wiggies, the dollar (appreciates/depreciates) and our imports from the Congo should (increase/decrease).7. If the euro price of the dollar decreases the euro will (appreciate/depreciate) and their exports will (increase/decrease).

Practice Quiz 3