Unit 7 Lets talk about FOREX

April 28,2016
Mechanics of federal foreign exchange

• The buying and seeking of currency.
• any transaction that occurs in the balance of payments necessities foreign exchange.
• the exchange rate is determined in the foreign currency markets.

Change in exchange rates

• exchange rates are a function of the supply and demand for currency.
• an increase in the supply of currency will increase the exchange rate of currency.

1. decrease in supply of currency will go up
2. an increase in demand for currency will go up
3. a decrease in demand for currency will go down

appreciation and depreciation

• appreciation of currency occurs when the exchange rate of currency increases.
• depreciation occurs when the exchange rate decreases.

exchange rate determinants

• consumer trades
• relative income
• relative price level
• speculation

exports and imports

• The exchange rate is a determinant of both exports and imports
• appreciation causes American goods to be relatively cheaper thus reducing exports and increasing imports.
• depreciation cause american goods to be relatively more expensive thus increasing exports and reducing imports.