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Determinants of foreign exchange rates. 1. Price level in Mexico increases Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos.

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Presentation on theme: "Determinants of foreign exchange rates. 1. Price level in Mexico increases Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos."— Presentation transcript:

1 Determinants of foreign exchange rates

2 1. Price level in Mexico increases Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

3 Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos 1. Price level in Mexico increases the dollar appreciates the peso depreciates

4 2. Interest rates in Mexico increase Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

5 2. Interest rates in Mexico increase the dollar depreciates the peso appreciates Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

6 3. Interest rates in the US increase Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

7 3. Interest rates in the US increase the dollar appreciates the peso depreciates Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

8 4. Mexico’s real GDP increases Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

9 4. Mexico’s real GDP increases the dollar appreciates the peso depreciates Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

10 5. US government reduces taxes Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

11 5. US government reduces taxes the dollar depreciates the peso appreciates Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

12 6. Americans increase their demand for Mexican tomatoes Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

13 6. Americans increase their demand for Mexican tomatoes the dollar depreciates the peso appreciates Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

14 7. American investors feel the Mexican economy will grow Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

15 7. American investors feel the Mexican economy will grow the dollar depreciates the peso appreciates Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

16 8. American investors feel the Mexican economy is unstable Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

17 8. American investors feel the Mexican economy is unstable the dollar appreciates the peso depreciates Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

18 9. Mexican demand for US guns increases Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

19 9. Mexican demand for US guns increases the dollar appreciates the peso depreciates Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

20 10. American demand for cocaine shipped through Mexico increases Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

21 10. American demand for cocaine shipped through Mexico increases the dollar depreciates the peso appreciates Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

22 11. The US imposes a tariff on Mexican goods Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

23 11. The US imposes a tariff on Mexican goods the dollar appreciates the peso depreciates Quantity of DollarsQuantity of Pesos Peso / dollar exchange rate Dollar / Pesos exchange rate S DD S The Market for Dollars The Market for Pesos

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