Unit 2 Investigation

How does the exchange rate affect international trades?

By

Victoria Pan

For

Wendy Pak

December 13, 2019

 Table of Contents

Table of Contents
Introduction........................................................................................................................................................ 3

Section I – What is the exchange rate and how does it generally affect our daily lives?........................................3

Section II – How do international trades function?.............................................................................................. 4

Section III – How does the exchange rate affect international trades?..................................................................5

Conclusion.......................................................................................................................................................... 6

Reflection on the Process and Results of Investigation......................................................................................... 6

Bibliography....................................................................................................................................................... 7

Appendices........................................................................................................................................................ 8

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 Investigative Action Plan — A Living Document
         
Action Step(s) Deadline Necessary Potential Result(s)
What needs to be   Resources Challenges Was this step successfully
done?  What do you need What potential challenges completed? Were any new steps
What is/are your in order to that may impede identified in the process?
learning goal(s)? complete this completion? How will How would you rate your efforts
step? you overcome them? for each task (1-4)? 

1. Come up Immediate Websites Coming up with a I am satisfied with

with a . about the research question myself because after the
research information is the hardest. instructions, I focused on
question. my research question and
came up with one
quickly. I would rate my
effort as 4.

2. Begin to Day 1  Internet and fast Too many information  I am happy with my
research, at Wi-Fi. will distract my focus performance because I
least 3 or very limited articles. completed my task. I would
sources. rate my effort as 4.

3. Create Day 1  Internet and fast Too many information  I am happy with my
citation. Wi-Fi. will distract my focus performance because I
or very limited articles. completed my task. I would
rate my effort as 4.

4. Complete    Sharp brain.  Deep thinking and I  I would rate my effort as 3

two OPVLs. Day 1-2 should focus all the because even though I
time. finished my task, I think that
my writings are not thorough
enough.

5.a. Write    Focus!  Starting to writ the  I will rate my effort as 4

research Day 2-4 Perseverance! introduction is the because I finished my essay
paper with Happy moods! hardest because when on time with efficiency.
proper you realized that you
just started, you would
format.
feel the pressure.

5.b Complete    Good memories  Could forget some  My effort is 3 because I
. reflection Day 2-4 important details think I should remember all
the mistakes that I have
made this time and try to
avoid them in the future.

7 Edit + format Day 5  rubrics  Forget the proper  I will rate my effort as 4
. for highest format because I completed my in-test
possible citations and bibliography.
Communicati

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 on level
(Business
Professional)

8. Submit on- Day 5  /  /  On time!

time

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Introduction

In the status quo, relationships between countries are bonded mostly by economical interactions,

for example, international trades. Without actually travelling to another countries, we can enjoy a

variety of high-quality goods from other countries. In this sense, as the direct consumers, we care

about the prices of international goods. As we sometimes notice, prices of gasoline from another

country could be very unstable. The exchange rate is a one of the most relevant factors that affect

prices of foreign products. Of course, it is useful for us to learn more about the connections

between the exchange rate and international trades, because not only can we make better

decisions when importing foreign goods, we can also maximize our benefits.

Section I – What is the exchange rate and how does it generally affect our daily lives?

The exchange rate is the value of a nation’s currency compare to the currency of another country

or region. (Kramer, 2019) To be specific, currently one US Dollar equals to approximately one

point three Canadian Dollars; or more, one Swiss Franc equals to approximately four point one

eight Brazilian Reals. The exchange rate could be seen as one of the most important determinants

of the economic health of a nation. There are many reasons as to why the exchange rate exists.

For example, differentials in interest rates could greatly have an impact on the exchange rate.

Central banks from each country release their influence over exchange rates, which means that

changing interest rates often impact currency value. Essentially, “higher interest rates attract

foreign capital and cause the exchange rate to rise.” (Twin, 2019) For most of ordinary people

like us, the most direct impact that we receive from the exchange rate is that when we plan to

travel to another

country, we should check it and change the domestic currency to the foreign currency according

to the rate. In most situations, citizens from developed countries would spend less money than

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others from developing countries when travel to other countries. It is not always like that;

however, we can still observe some sort of potential correlations between the developments of a

country and its economic power. What’s more, when we are buying imported goods such as

fruits from other countries, we can discover that the prices are not always stable: suddenly they

could get extremely high, while in other times they could decrease rapidly. These phenomena all

happen due to the change of the exchange rate.

Section II – How do international trades function?

The fundament of trades between two countries is bilateral trade agreements. (Batchelor, 2019)

In order for international trading to happen, countries should all maintain in comparatively

peaceful conditions. Peace doesn’t necessarily mean that the government of country would

unconditionally agree with the policies or the ideology of another country, quite the contrary, as

long as both countries have the same interests pursue, they could use trades as the most efficient

way to accomplish this ultimate purpose. When a system is established, it needs one or multiple

organizations to monitor in order to guarantee that the trading system is functional and that

countries all comply with regulations. World Trade Organization is the representative supervisor

for international trades and rules. According to its official website, it is “the only global

organization dealing with the rules of trade between nations.” A nation should first get the

consensus from one of the most influential economic associations, from that point could it truly

assimilate into the big circle of global economics. The final step for the international trading

system to be completed is about the currencies. This is where the exchange rate begins to show

its importance.

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Section III – How does the exchange rate affect international trades?

In most situations, a weaker currency controls exports and makes imports more expensive, on the

contrary, a stronger currency restricts exports and makes imports cheaper. (Kass, 2019) For

example, the US dollar is a strengthening dollar right now, which means that people from other

countries have to pay more of their own currency to get a certain number of US dollars.

Nevertheless, the businesspeople who dedicate themselves in exporting business using the US

dollars don’t find this situation satisfactory. The reason is that their products are in US dollars,

thus those exports will become more expensive for the foreign costumers and the businesses that

have to pay for them in other currencies. This would strike the enthusiasm and the purchasing

power of foreign consumers. The profits that the American exporters make fall because they

have to convert foreign currencies back to dollars. Just the reverse, the American government

would love to import overseas goods because they could spend a much lower amount of money

to obtain products. Vice versa, traders and manufacturers from a country which has a weak

currency are willing to export because the profits of other currencies that they make would

change into even higher profits. The most mysterious point about the exchange rate is that even

when the US dollars are very strong and could import overseas goods in a low price, the

domestic market will be hurt instead. Due to the low cost for foreign goods, the prices of them

won’t be as high as domestic products, therefore people tend to loss interest in domestic products

which will ultimately put American-made products in inferior position. In the reality, since the

exchange rate is constantly changing, there is a small likelihood for countries to remain the same

position for a very long time, either in a “more imports than exports” or switch to “more exports

than imports” constantly. Through this, the “sustainability” of the trading system can be

maintained.

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Conclusion

The determinants of the exchange rate are very various and unstable. We cannot predict

accurately the trends of a kind currency, however there are some factors that have the closest

connection with it, for example, the economic and political stability will apparently influence the

exchange rate. Meanwhile, the instability of the exchange rate on the contrary enhances the

economic developments by impressing the imports and exports between countries and provides

more opportunities for everyone to create wealth. The topic is closely relevant to our daily lives

as the time goes, for a large quantity of products that we enjoy is foreign. As citizens from

different nations are increasingly used to their new identities “Global Villagers”, interactions

between currencies will be more and more frequent and never-ending.

Reflection on the Process and Results of Investigation

Overall, I personally think that I did a good job in coming up with the topic for the investigation,

researching and focusing on my investigation most of the time during classes. I am more

experienced with the format such as in-text citation, because I have learned the lessons from not

having in-text citation in another subject as well. I found it difficult to stay calm when I was

overwhelming by the information online. I didn’t consider myself as being really organized

because I had to constantly adjust my action plan which messed my original schedule up a lot.

The most crucial quality of writing an investigation is to be preserved. Often when I opened my

word document and saw the blank pages that I had to fill in, I was a little depressed by it. I think

that next time whenever I am working on a case study or an investigation, I would write

something optimistic in order to keep me hyped.

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 Bibliography

Twin, Alexandra. “6 Factors That Influence Exchange Rates.” Investopedia, 20 May 2019,

www.investopedia.com/trading/factors-influence-exchange-rates.

Batchlelor, Lesley. “How World Trade Works.” Opentoexport, 21 June 2019,

https://opentoexport.com/article/how-world-trade-works/

Kramer, Michael. “Exchange Rate Definition.” Investopedia, Investopedia, 4 Dec. 2019,

https://www.investopedia.com/terms/e/exchangerate.asp.

Kramer, Leslie. “Interesting Facts About Imports and Exports.” Investopedia. Investopedia, 18

Nov. 2019. Web. 5 Dec. 2019.

https://www.investopedia.com/articles/investing/100813/interesting-facts-about-imports-and-

exports.asp

Kass, Elliot. “How Exchange Rates Affect Imports and Exports.” American express.

Americanexpress, 5 Dec. 2019,

www.americanexpress.com/us/foreign-exchange/articles/how-exchange-rates-affect-imports-

and-exports.

Petras, Marcell. “Why Exchange Rates Are Important in International Trade.” Forex

springboard, 3 July 2019,

https://forexspringboard.com/exchange-rates-and-international-trade/

Segal, Troy. “Currency Fluctuations: How They Affect the Economy.” Investopedia, 23 Aug.

2019, www.investopedia.com/articles/forex/080613/effects-currency-fluctuations-economy.asp.

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 Appendices

 OPVL -Source #1

MLA Kramer, Leslie. “Interesting Facts About Imports and Exports.” Investopedia.

Citation  Investopedia, 18 Nov. 2019. Web. 5 Dec. 2019.
https://www.investopedia.com/articles/investing/100813/interesting-facts-
about-imports-and-exports.asp
Origin:   Who created it: Investopedia
  Author (Reporter): Leslie Kramer
When: 5 December 2019
Where: online
Purpose  Purpose or Intent (why): The purpose of this article is to introduce the
relationships between exchange rate, imports and exports, in order for more
amateurs to know more about this topic
Why did the author choose to create it in this way? The reason why the
author created the article in this way is because Investopedia is a reliable
source that many people, when they encounter economical concepts that they
don’t know, they would come to the website to search them. This means that
Investopedia has the affluence spreading to more people than other websites.
Who is the intended audience? People who are in need of or interested in this
topic.
What does the document “say”? The relationships between exchange rate
and international trades are more complicated than we thought. In general, the
exchange rate has an effect on the trade surplus, which affects the exchange
rate. However, there is a pattern that a weaker domestic currency stimulates
exports and makes imports more expensive.
What is below the surface? The true factor below the surface is more about
macroeconomics, in other word, the general world economy will affect the
exchange rate and therefore be more impactful on trades.
Value   Important Takeaway (How has the source helped you with your

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 research?):  The article explains clearly about how the exchange rate affect
international trades.
What questions has it answered? It has answered my question: overall, what
are some impacts that the exchange rate brings to international trades?
Limitation(s)  How reliable is the source? Investopedia is a reliable source, according to
mediafactbiascheck.com, it “rates Investopedia Least Biased based on neutral
news reporting as well as low biased editorial positions.”
Is it objective or subjective? Based on the comments from the users, we can
see that this website is more objective than subjective.
Are there political, institutional, religious, cultural, ideological or personal
biases? There are no any of the common biases related to the website.
Summary:   Thesis / Central Concept: International trades are related to the exchange
rate.
 Point 2: In general, the exchange rate has an effect on the trade surplus,
which affects the exchange rate.
 Point 3: There is a pattern that a weaker domestic currency stimulates exports
and makes imports more expensive.

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OPVL -Source #2

MLA Kass, Elliot. “How Exchange Rates Affect Imports and Exports.” American
Citation  express. Americanexpress, 5 Dec. 2019,
www.americanexpress.com/us/foreign-exchange/articles/how-exchange-rates-
affect-imports-and-exports.
Origin:   Who created it: American Express
  Author (Reporter): Elliot Kass
When: 5 December, 2019
Where: online
Purpose  Purpose or Intent (why): The purpose of this article is to expand on a
situation that is happening right now in the world and explain some economic
knowledge behind the problem in order to teach more people about the
interaction between the exchange rate, imports exports.
Why did the author choose to create it in this way? The author used three
paragraphs and point format for clearer structure to guide the readers from not
knowing anything to understanding basic correlations between the three. Also,
American Express is a relatively reliable sources so more people will search in
this website and it is an efficient way to spread the information.
Who is the intended audience? Anyone who accidentally click this article or
has the intention to do the research and expand his knowledge and
understanding.
What does the document “say”? Some ways that the exchange rates affect
imports and exports and some factors that cause the exchange rates to
fluctuate. The author used examples that are relevant to our daily lives.
What is below the surface? The true factor below the surface is more about
macroeconomics, in other word, the general world economy will affect the
exchange rate and therefore be more impactful on trades.
Value   Important Takeaway (How has the source helped you with your
research?): I learned about how the whole trade system is connected with the
exchange rates and some exemplars expanding on the concept.  

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 What questions has it answered? In what aspects are the international trades
are affected by the exchange rates and how do the impacts show?
Limitation(s)  How reliable is the source? Since American Express is not a website that
dedicates in giving out economical knowledge like Investopedia, we should
not totally trust this website as a source of information. However, the
information that I acquired doesn’t need an extremely high-level accuracy and
profession knowledge, I think this source is reliable enough for this section.
Is it objective or subjective? It is objective because the author was simply
stating the truth and giving out examples. The article is written in third-person
pronouns; therefore, it has already restricted the author putting his own opinion
in it.
Are there political, institutional, religious, cultural, ideological or personal
biases? There are no any of the common biases related to the website.
Summary:   Thesis / Central Concept: There are many correlations between the exchange
rates and international trades.
 Point 2: Different currencies with different exchange rates are facing various
situations in trades, both beneficial and harmful at the same time.
 Point 3: There are many factors that affect the exchange rates for example the
economic stability of a nation.

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