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

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

• 1.32 Euros

• 0.53 Euros

• .76 Euros

• 1.59 Euros

How is an exchange rate determined in the money market?

• The forces of supply and demand

• Government/the Federal Reserve Bank

• Whatever sellers of goods are willing to take

• Investors decide the value of the currency they wish to invest

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

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 $$

How does inflation rate affect currency value/exchange rate?

• Higher inflation leads to depreciating currency & vice versa

• Increasing inflation leads to more favourable exchange rates

• Higher inflation leads to currency appreciation

• Lower inflation leads to more favourable exchange rate

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

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 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

If you are going to visit America and have $2999 to spend, how much currency could you obtain? (1AUD = 0.68USD)

• = 1x 0.68

• = 1 / 0.68

• = 2999 x 0.68

• = 2999 / 0.68