The Global Markets Continued... Foreign Exchange Markets Government Involvement with Trade Trade Agreements and Free Trade Zones

Foreign Exchange Markets A market in which the money of one nation is traded for the money of another nation is known as a “foreign exchange market.” or “currency exchange.” The exchange rate is the rate at which the currency of one nation can be traded for the currency of another. The current C$/US$ exchange rate is: 1 CAD = 1.0040 USD

International Currencies A reserve currency is a currency that is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. They also tend to be the international pricing currency for products traded on a global market, and commodities such as oil, gold, etc Exchange rates enable consumers in one country to buy products in others.

The World's Reserve Currencies

Why do Exchange Rates Change? Supply and Demand! The determinants of demand or supply act to shift the curves for either C$ or US$, causing the equilibrium price, or “exchange rate,” to fluctuate every day. A currency can “appreciate” (increase in value compared to other currencies), or “depreciate” (decline in value compared to others). If you are selling goods and services to other nations, they demand and need your currency.

How the Government Reduces Imports & Increases Exports Protective Tariffs: places taxes on imports to make them more expensive for consumers. Import Quotas: limits the amount of a good that can be imported into the country. Non-Tariff Barriers: barriers other than tariffs that nations can create, such as licensing rules. Export Subsidies: payments to domestic producers to increase the supply to foreigners.

Why does the Government Sometimes Impede Trade? Imports can hurt domestic employment and exports can increase domestic employment, so they try and limit the amount of imports. Policy Considerations: It is often beneficial for politicians to gain votes by protecting certain domestic industries. Ex. More farm subsidies means more votes from farmers. Import quotas, tariffs, and barriers raise prices for consumers, but may be good for producers.

Trade Agreements Most Favoured Nation Clause: allows another nation's exports into Canada at the lowest tariff. World Trade Organization (WTO): established in 1994 to enforce previous agreements. European Union: eliminated tariffs among its European members. Free movement of labour, tourists, and capital between them. NAFTA: lowered or abolished trade barriers between Canada, U.S.A., and Mexico.

The Global Economy. In-Class, Open-Book Assignment: Utilize charts or graphs if appropriate. I will help those who have questions. Question # 1 Question # 2 Question # 7 Question # 8 Question # 10