1. Measuring Trade

2. Exchange Rates Exchange rate: the value of one currency in terms on another currency. Exchange rate: the value of one currency in terms on another currency. For example: Currently the exchange rate for Dollars into Euros is about.70 For example: Currently the exchange rate for Dollars into Euros is about.70 Thus 1 dollar equals.7 Euros Thus 1 dollar equals.7 Euros So, what do you do if you want to convert 50 Dollars into Euros? So, what do you do if you want to convert 50 Dollars into Euros? Multiply 50 by.7 Multiply 50 by.7 35 Euros 35 Euros

3. Exchange Rates You can exchange money for a different currency at: You can exchange money for a different currency at: Some Banks (usually “international” banks) Some Banks (usually “international” banks) The Airport (usually not a good rate) The Airport (usually not a good rate) Some Hotels (usually those in large cities and near an airport) Some Hotels (usually those in large cities and near an airport)

4. Exchange Rates But if you are going to a reasonably developed country the quickest and easiest way to get the money of that country is.... But if you are going to a reasonably developed country the quickest and easiest way to get the money of that country is.... Go to an ATM in that country. Go to an ATM in that country. To find out exchange rates, just search on the internet. To find out exchange rates, just search on the internet. http://www.oanda.com/convert/cla ssic http://www.oanda.com/convert/cla ssic http://www.oanda.com/convert/cla ssic http://www.oanda.com/convert/cla ssic

5. Exchange Rate Strong/Weak Currency Strong/Weak Currency Strong just means that currency is worth more Strong just means that currency is worth more Weak means it is worth less Weak means it is worth less Right now the Dollar is weak compared to the Euro because it takes more than one dollar to make 1 Euro. Right now the Dollar is weak compared to the Euro because it takes more than one dollar to make 1 Euro.

6. Exchange Rate Appreciation – when a currency gets stronger or gains value Appreciation – when a currency gets stronger or gains value Depreciation – when a currency gets weaker or loses value Depreciation – when a currency gets weaker or loses value

7. Exchange Rate Systems Foreign Exchange Market: the banks and other financial institutions that buy and sell foreign currencies. Foreign Exchange Market: the banks and other financial institutions that buy and sell foreign currencies.

8. Exchange Rate Systems Fixed Exchange-Rate: Fixed Exchange-Rate: When two countries agree to try and keep the values of their currency constant against one another When two countries agree to try and keep the values of their currency constant against one another After WWII most of the big countries in the world used this After WWII most of the big countries in the world used this Flexible Exchange-Rate: Flexible Exchange-Rate: A system in which the exchange rate is determine by supply and demand A system in which the exchange rate is determine by supply and demand Now, nearly everyone uses this Now, nearly everyone uses this

9. Balance of Trade Trade Surplus: Trade Surplus: When a country exports more than it imports When a country exports more than it imports Trade Deficit: Trade Deficit: When a country imports more than it exports When a country imports more than it exports

10. Balance of Trade Why is a Trade Deficit Bad? Why is a Trade Deficit Bad? The more you import over export, the more of your country’s currency there is around the world. The more you import over export, the more of your country’s currency there is around the world. The more of your currency there is, the weaker it becomes The more of your currency there is, the weaker it becomes The weaker it becomes the less you can buy with it. The weaker it becomes the less you can buy with it. The less you can buy, the more you have to use to continue buying imports The less you can buy, the more you have to use to continue buying imports