6.2 Exchange Rates

In the foreign exchange market, one currency is exchanged for another; the price of one currency in terms of the other is the ______

• exchange rate

• cost of borrowing

• inflation

• differential

If one currency becomes more valuable in terms of the other, it is said to _____

• appreciate

• depreciate

If one currency becomes less valuable in terms of the other, it is said to _____.

• appreciate

• depreciate

For example, the exchange rate of a dollar =

• # of foreign currency units / $1.00

• $1.00/# of foreign currency units

If the exchange rate for the Euro is $1.20 per Euro, then the exchange rate for the dollar is the _____- or 0.83 Eurocents per dollar.

• same

What might cause the value of the U.S. dollar to appreciate in relationship to the euro?

•  Increased demand for European products in the U.S.

• Increased demand for U.S. products in Europe.

• Increases in the U.S. money supply

• High rates of inflation in the U.S.

One advantage of a weak dollar is that… ?

• travel abroad is cheaper for Americans.

• American income tax rates go down.

• Imports are cheaper for Americans to buy.

• American exports increase.

Stacy traveled to Mexico and took $100 in U.S. currency. Based on the given info, she received about how many pesos after currency exchange?

• 10.34 pesos

• 9,700 pesos

• 1,034 pesos

• 970 pesos

Answer explanation

$100 x 10.34 exchange rate = 1,034 pesos

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

According to the table, what is the Euro equivalent of 1 USD?

• 1.32 Euros

• 0.53 Euros

• .76 Euros

• 1.59 Euros