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Chapter 10 Exchange Rates and Exchange Rate Systems.

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Presentation on theme: "Chapter 10 Exchange Rates and Exchange Rate Systems."— Presentation transcript:

1 Chapter 10 Exchange Rates and Exchange Rate Systems

2 Copyright © 2005 Pearson Addison-Wesley. All rights reserved Examples of Exchange Rates

3 Copyright © 2005 Pearson Addison-Wesley. All rights reserved FIGURE 10.1 The Demand Curve for Foreign Exchange

4 Copyright © 2005 Pearson Addison-Wesley. All rights reserved FIGURE 10.2 The Supply of Foreign Exchange

5 Copyright © 2005 Pearson Addison-Wesley. All rights reserved FIGURE 10.3 Supply and Demand in the Foreign Exchange Market

6 Copyright © 2005 Pearson Addison-Wesley. All rights reserved FIGURE 10.4 An Increase in Demand for British Pounds

7 Copyright © 2005 Pearson Addison-Wesley. All rights reserved FIGURE 10.5 An Increase in the Supply of British Pounds

8 Copyright © 2005 Pearson Addison-Wesley. All rights reserved Exchange Rates in the Long Run: Purchasing Power Parity Purchasing power parity: the equilibrium value of an exchange rate is at the level that allows a given amount of money to buy the same quantity of goods abroad as it will buy at home

9 Copyright © 2005 Pearson Addison-Wesley. All rights reserved FIGURE 10.6 The Effects of an Increase in Homes Interest Rate

10 Copyright © 2005 Pearson Addison-Wesley. All rights reserved Determinants of an Exchange Rate: Summary

11 Copyright © 2005 Pearson Addison-Wesley. All rights reserved FIGURE 10.7 Fixed Exchange Rates and Changes in Demand

12 Copyright © 2005 Pearson Addison-Wesley. All rights reserved FIGURE 10.8 Selling Reserves of Pounds to Counter a Weakening Dollar


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