Name__________________________________

OTL 6.3

The Foreign Exchange Market

Learning Target 1: I can show and explain how the equilibrium international price/value of a currency is determined in the foreign exchange market, and what causes it to change The international value/price of a currency is set in the foreign exchange market

Check for Understanding!

Supply $ (currency)
people who have dollars but want to exchange them for some other currency (to buy something foreign)

P/$

US Dollar

S$1 p1 D$1 Q$
Show and explain what would happen to the price of the dollar if more Japanese tourists come to the US.

Show and explain what would happen to the international value of the peso if the price level in Mexico increases.

Demand $ (currency)
people who dont have dollars but want them (to buy something US made)

Currency S/D Determinants

You need foreign currency to buy foreign stuff. Whatever would cause you to buy more or less of another countrys stuff compared to yours would also cause you to buy more or less of that countrys currency.

Exports, Imports and the Value of Currencies

Goods and Services

Financial Assets (Stocks and Bonds)

1. 2.
example (2 currencies)

3.

USD

Euro

Show and explain what would happen to the value of the USD and the value of the Euro if interest rates in Germany increased.
2 separate, correct explanations depending on if looking at it from US perspective or German perspective. Do not have to explain both.

1. 2.