The Foreign Exchange Market- Macro 6.3

Clifford from ACDC Econ explains key concepts of foreign exchange, focusing on supply and demand for US and Canadian dollars. He discusses how exchange rates are determined and the roles of different countries in demanding and supplying currencies. The video also covers four shifters of foreign exchange: tastes and preferences, price level, income, and interest rates, with a focus on how interest rates affect currency appreciation and depreciation.

What determines the exchange rate between two currencies?

• The supply and demand for those currencies

• The political relationship between the countries

• The amount of gold reserves a country has

• The population size of the countries

Who demands US dollars in the foreign exchange market?

• Canadians

• Americans

• Europeans

• Asians

Which of the following is NOT a shifter of foreign exchange?

• Tastes and preferences

• Geographical location

• Price level or inflation

• Interest rates

What happens to the demand for US dollars when US interest rates are higher than Canadian rates?

• Demand for US dollars decreases

• Demand for US dollars remains the same

• Demand for Canadian dollars increases

• Demand for US dollars increases

If the US dollar appreciates, what happens to the Canadian dollar?

• It remains unchanged

• It becomes more valuable than the US dollar

• It depreciates

• It appreciates