1 / 7

Understanding the Foreign Exchange Market

This module explores the intricacies of the Foreign Exchange Market, covering vital concepts such as the role of exchange rates, the significance of real exchange rates in the current account, and how supply and demand principles govern equilibrium exchange rates. Key topics include the loanable funds market, capital and current account interactions, inflation's impact on exchange rates, and purchasing power parity (PPP). Through this comprehensive study, students will grasp how foreign currencies appreciate and depreciate against one another, influencing global trade and economics.

norah
Télécharger la présentation

Understanding the Foreign Exchange Market

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. AP Economics Mr. Bernstein Module 42: The Foreign Exchange Market April 23, 2014

  2. AP EconomicsMr. Bernstein The Foreign Exchange Market Objectives - Understand each of the following: • The role of the Foreign Exchange market and the exchange rate • The importance of real exchange rates and their role in the current account

  3. AP EconomicsMr. Bernstein Exchange Rates • Loanable Funds Market models flow of financial assets into and out of the Capital Account…and… • Goods and Services flow into and out of the Current Account • The Exchange Rate insures Current Account minus Capital Account = 0 • Currencies appreciate and depreciate vs. one another

  4. AP EconomicsMr. Bernstein Equilibrium Exchange Rates • FX rate is really just a price • Follows Laws of Supply and Demand • Labeling: think “bottom/bottom” • D slopes downward: Lower USD makes US products more attractive to Europeans

  5. AP EconomicsMr. Bernstein Inflation and Real Exchange Rates • Example: Real Mexican Peso Exchange Rate = MXN/USD FX rate * (CPIMEX / CPIUSA) • Economists may refer to nominal and real exchange rates

  6. AP EconomicsMr. Bernstein Purchasing Power Parity • PPP = Exchange rate where basket of goods and services would cost the same in each country • Example: Basket of goods and services in US costs $100 and in Mexico costs MXN1,000. PPP = 10 MXN per USD

  7. AP EconomicsMr. Bernstein FX rates as of 4/20/14

More Related