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Foreign Exchange

Foreign Exchange

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Published by anshpaul

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Categories:Types, Business/Law
Published by: anshpaul on Dec 01, 2009
Copyright:Attribution Non-commercial


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Slide 13-1
Copyright © 2003 Pearson Education, Inc.
Exchange rates are important because they enable usto translate different counties’ prices into comparableterms.
Exchange rates are determined in the same way asother asset prices.
The general goal of this chapter is to show:
How exchange rates are determined
The role of exchange rates in international trade
Slide 13-2
Copyright © 2003 Pearson Education, Inc.
Domestic and Foreign Prices
If we know the exchange rate between two countries’currencies, we can compute the price of one country’sexports in terms of the other country’s money.
 – Example: The dollar price of a £50 sweater with a dollar exchange rate of $1.50 per pound is (1.50 $/£)
(£50) =$75.
Exchange Rates andInternational Transactions
Slide 13-3
Copyright © 2003 Pearson Education, Inc.
Two types of changes in exchange rates:
Depreciation of home country’s currency
 – A rise in the home currency prices of a foreign currency – It makes home goods cheaper for foreigners and foreign goodsmore expensive for domestic residents.
Appreciation of home country’s currency
 – A fall in the home price of a foreign currency – It makes home goods more expensive for foreigners andforeign goods cheaper for domestic residents.
Exchange Rates andInternational Transactions

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