Measuring TradeMeasuring Trade

Exchange RatesExchange Rates

Exchange rate: the value of one Exchange rate: the value of one currency in terms on another currency.currency in terms on another currency.

For example: Currently the exchange For example: Currently the exchange rate for Dollars into Euros is about .70rate for Dollars into Euros is about .70

Thus 1 dollar equals .7 EurosThus 1 dollar equals .7 Euros So, what do you do if you want to So, what do you do if you want to

convert 50 Dollars into Euros?convert 50 Dollars into Euros? Multiply 50 by .7Multiply 50 by .7 35 Euros35 Euros

Exchange RatesExchange Rates

You can exchange You can exchange money for a different money for a different currency at:currency at: Some Banks (usually Some Banks (usually

“international” banks)“international” banks) The Airport (usually not The Airport (usually not

a good rate)a good rate) Some Hotels (usually Some Hotels (usually

those in large cities those in large cities and near an airport)and near an airport)

Exchange RatesExchange Rates But if you are going to a But if you are going to a

reasonably developed reasonably developed country the quickest and country the quickest and easiest way to get the easiest way to get the money of that country money of that country is . . . .is . . . . Go to an ATM in that country.Go to an ATM in that country.

To find out exchange rates, To find out exchange rates, just search on the internet.just search on the internet. http://http://www.oanda.comwww.oanda.com

/convert/classic/convert/classic

Exchange RateExchange Rate

Strong/Weak CurrencyStrong/Weak Currency Strong just means that Strong just means that

currency is worth morecurrency is worth more Weak means it is worth Weak means it is worth

lessless Right now the Dollar is Right now the Dollar is

weak compared to the weak compared to the Euro because it takes Euro because it takes more than one dollar to more than one dollar to make 1 Euro. make 1 Euro.

Exchange RateExchange Rate

Appreciation – when a currency gets Appreciation – when a currency gets stronger or gains valuestronger or gains value

Depreciation – when a currency gets Depreciation – when a currency gets weaker or loses valueweaker or loses value

Exchange Rate SystemsExchange Rate Systems

Foreign Foreign Exchange Exchange Market: the Market: the banks and other banks and other financial financial institutions that institutions that buy and sell buy and sell foreign foreign currencies.currencies.

Exchange Rate SystemsExchange Rate Systems

Fixed Exchange-Rate: Fixed Exchange-Rate: When two countries agree to try and When two countries agree to try and

keep the values of their currency keep the values of their currency constant against one anotherconstant against one another

After WWII most of the big countries in the After WWII most of the big countries in the world used thisworld used this

Flexible Exchange-Rate: Flexible Exchange-Rate: A system in which the exchange rate is A system in which the exchange rate is

determine by supply and demanddetermine by supply and demand Now, nearly everyone uses thisNow, nearly everyone uses this

Balance of TradeBalance of Trade Trade Surplus: Trade Surplus:

When a country exports more than it When a country exports more than it importsimports

Trade Deficit:Trade Deficit: When a country imports more than it When a country imports more than it

exportsexports

Balance of TradeBalance of Trade

Why is a Trade Deficit Bad?Why is a Trade Deficit Bad? The more you import over export, the The more you import over export, the

more of your country’s currency there is more of your country’s currency there is around the world.around the world.

The more of your currency there is, the The more of your currency there is, the weaker it becomesweaker it becomes

The weaker it becomes the less you can The weaker it becomes the less you can buy with it.buy with it.

The less you can buy, the more you The less you can buy, the more you have to use to continue buying importshave to use to continue buying imports