Exchange Rates

What is an exchange rate?

• The rate at which goods are exchanged between two countries

• The price of one nation's currency in terms of another's

• How many US dollars you can exchange for RMB at Travelex

• The price of goods in terms of a foreign currency

Why do changing exchange rates help one country and hurt the other?

• One side loses purchasing power and the other gains it

• Takes money away from one side and gives it to the other

• Causes war between the two countries

• One country's government introduces tariffs to protect local industries

What is the increase in the value of a currency?

• Exchange rate

• Recession

• Depreciation

• Appreciation

If the US $ were to appreciate in relation to the Euro, what effect would this have?

• European consumers would have more purchasing power in US

• US consumers can buy more European goods and services for fewer $$

• US consumers can buy more English goods and services for fewer $$

• European tourists to the US will spend more $$

If the Mexican Peso depreciates in relation to the Chinese Yuan, how is Mexico affected?

• Mexico has less purchasing power in Chinese currency

• Mexico benefits from increased purchasing power

• Mexico would have more Chinese investors

• They would be invaded by China

What does it mean when an economist says a currency is stronger?

• It can be exchanged for more of a lesser foreign currency

• It can be converted to prices in any currency

• There a few things it could buy

• It will buy fewer foreign goods

A developing country’s two major sources of income from international trade are fishing and tourism. If the country’s exchange rate depreciated, what is likely to happen?

• Imported goods would become cheaper for local people.

• The country would definitely become poorer.

• The price of fish sold as exports would become cheaper.

• Tourists to the country would be discouraged by higher prices.

In 2009 the exchange rate of the Singapore dollar changed from 1.49 = 1 US dollar to 1.43 Singapore dollars = 1 US dollar.

How would this affect the import prices and export prices for Singapore?

• decrease/decrease

• decrease/increase

• increase/decrease

• increase/increase

What is a decrease in the value of a currency?

• Appreciation

• Depreciation

• Inflation

• Absolute advantage

If the AUD were to appreciate in the relation to the USD, what effect would this have?

• Australian imports become cheaper.

• Australian exports become more expensive to American buyers.

• Australian imports become more expensive.

• Australian exports become less expensive to American buyers.