Today’s Schedule – 12/13

• 2 International Trade Presentations • Exchange Rates PPT• Activity: Exchanging Classwork for Goods• Homework– Read 19.1– Study Ch. 18 Quiz

Exchange Rates

• Value of a foreign currency in terms of the home nation’s currency• Can’t use the US Dollar everywhere!!

Calculating Exchange Rates

• Example: –Staying in a hotel in Mexico costs 500

pesos/night–Current exchange rate is 1 US Dollar =

10 pesos–500 pesos/10 pesos = $50

Calculating Exchange Rates

• Reverse Example:–Staying in a hotel in Mexico and don’t

want to spend more than US$70 a night–Current exchange rate is 1US Dollar = 9

Pesos–70 x 9 = $630 Pesos

Strong and Weak Currencies

• When the value of a currency increases or appreciates, it becomes stronger–Ex: Then: 1 US Dollar = 100 Yen;

Now: 1 US Dollar = 110 Yen•Dollar has appreciated

Strong and Weak Currencies

• When the value of a currency decreases or depreciates, it becomes weaker–Ex: Then: 1 US Dollar = 100 Yen; Now 1

US Dollar = 90 Yen

Exchange Rate Systems

• Most countries operate on a flexible exchange rate system where exchange rates are determined by S & D• Some use a fixed exchange rate–Often a new/struggling economy will fix

its exchange rate to a stronger currencies (i.e. Pesos and US Dollar)