1 / 4

Foreign Exchange Rate

Foreign Exchange Rate. Introduction. Suppose that a wool sweater can be purchased in the U.S. for $90 and that an equivalent sweater is available in India for Rs. 3000. Ignoring transportation costs, which sweater is less expensive?  Is $90 more or less than Rs. 3000?

alika-tillman
Télécharger la présentation

Foreign Exchange Rate

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Foreign Exchange Rate Introduction • Suppose that a wool sweater can be purchased in the U.S. for $90 and that an equivalent sweater is available in India for Rs. 3000. • Ignoring transportation costs, which sweater is less expensive?  Is $90 more or less than Rs. 3000? • It depends- On the exchange rate. •  What's the exchange rate?  If the exchange rate • $1 = Rs.60, • 90$ = 60x90 = Rs.5400 • Indian sweater is the less expensive.  • At these prices, Americans will be importing sweaters from India.  Alternatively, the Indians will be exporting sweaters to the U.S.

  2. Foreign Exchange Rate Foreign Exchange Yen Japan Pound Great Britain Euro European Union Dollar United States Foreign exchange refers to all other currencies in the world other than the given country’s domestic currency. For example; All currencies other than rupee is foreign exchange for India.

  3. Foreign Exchange Rate Foreign Exchange - Significance Facilitating Trade between countries Medium for international Payments Law of comparative advantage Significance of Foreign Exchange Law of comparative advantage - each country should produce what it has an advantage in producing and then trade. Everyone has a comparative advantage at something. To find out comparative cost we compare opportunity cost of producing each good. Opportunity cost is the loss faced by not choosing the next best option.

  4. Foreign Exchange Rate Meaning of Foreign exchange rate The foreign exchange market is a global decentralised marketplace that determines the relative values of different currencies. Exchange rates are determined in markets by the interaction of supply and demand. The exchange rate between two currencies constantly changes. • Refers to the rate at which one currency is exchanged for the other. • It is the rate of parity = amount of domestic currency you need to buy currency of another country. • If 1$ = Rs.62 • Then, Rs 1 = 1/62 = $ 0.16

More Related