[“S&D” determine currency strengths] Japan United States [What if the U.S. wants more Mazdas from Japan?]

[“S&D” determine currency strengths] Europe United States [What if the Europeans want more American cars?]

Japanese TV cost Y115,000 A. $1 = Y140 [TV would cost $821.43] 1. A. $1 = Y140 [TV would cost $821.43] B. $1 = 80 [TV would cost $ ] B. $1 = 80 [TV would cost $ ] C. $1 = 107 [TV would cost $ ] C. $1 = 107 [TV would cost $ ] 2. A. 1 Euro = $1.34 (Today) B. 1 Euro = 86 cents [in 2002] B. 1 Euro = 86 cents [in 2002] C. 1 Euro = $1.51 [in 2008] C. 1 Euro = $1.51 [in 2008] 3. $1=1.10 Loonies 4. A. $1 = 11,764 rupiahs [Today] B. $1 = 8417 rupiahs [in 2011] B. $1 = 8417 rupiahs [in 2011] 5. A. $1 = P13.24 [Today] B. $1 = P11.47 [in 2011] B. $1 = P11.47 [in 2011] 6. A. TODAY $1 = W B $1 = W B $1 = W Appreciation/Depreciation History And – $1 = 20,918 Vietnam dongs Indonesian Rupiah Mexican Peso Korean Won

D $ 1.50 $ Equals Equals Equals Dollar price of another currency [yen] increases [$1 to $1.50] International value of dollar falls (dollar depreciates) Exports increase Imports decrease Dollar price of another Currency [yen] decreases [$1 to.50] International value of dollar rises (dollar appreciates) Imports increase Exports decrease AppreciationDepreciation Currency Appreciation and Depreciation # of Yen D A S D2D2D2D2 D3D3D3D3

Therefore, it takes fewer pennies, so the dollar is stronger [$ price decreases] Therefore, it takes more pennies, so the dollar is weaker. [$ price increases]

Y50 $’s looking for Y The Market for Dollars Quantity of Dollars Yen Price of Dollar 0 Y100 P QEQE S$S$S$S$ D1$D1$D1$D1$ Exchange Rate: $1 = ¥100 D A A D Appreciation of the Dollar Increase in taste for U.S. goods Increase in U.S. Interest Rates Decrease in U.S. Price Level Decrease in U.S. Growth Rate Depreciation of Dollar Decrease in Taste Decrease in I n. Rates Increase Price Level Increase Growth Rate D2D2D2D2 Y150 E1E1E1E1 E2E2E2E2 E3E3E3E3 Decrease in U.S. Currency Price Increase in Currency Price D3D3D3D3 Yendepreciates Yenappreciates Y looking for $’s

“ increase in taste” 1. Show how an “ increase in taste” for Japanese cars would affect the market for the Yen and the Dollar. # of Yen # of Dollars 2. How would an increase in Mexico’s real interest rate real interest rate affect the value of the Peso and the value of the Euro? high inflation 3. How would high inflation in South Korea affect the market for the Won and the Dollar? economic 4. How would a U.S. economic expansion expansion affect the value of the Dollar and the value of the Yen? e1 # of Pesos # of Euros # of Won # of Dollars # of Yen D D D D D D D D SS S S S S S S Appreciate Depreciate Appreciate Depreciate Depreciate Appreciate Depreciate Appreciate D2D2 S2S2 D2D2 S2S2 S2S2 S2S2 D2D2 e2 D2D2 Yen Price of $$ Price of Yen Euro Price of peso Peso Price of Euro $ Price of Won Won Price of $ Yen Price of $$ Price of Yen

Malaysia’s price level is decreasing faster than that of Brazil 4. If Malaysia’s price level is decreasing faster than that of Brazil, Malaysian ringgitMalaysia’s exports the Malaysian ringgit will (apprec/deprec) & Malaysia’s exports to Brazil to Brazil will (increase/decrease). growth rate is less rapid in Djibouti 5. If growth rate is less rapid in Djibouti than in Swaiziland, Djibouti bouti then the Djibouti bouti will (appreciate/depreciate) and Djibouti’s exports Djibouti’s exports will (increase/decrease). Euro price of the S. Korean won decreasesEuro 6. If the Euro price of the S. Korean won decreases, the Euro has European exports to Korea (apprec/deprec) & European exports to Korea will (incr/decr). interest rates are increasing faster in Zambia 7. If interest rates are increasing faster in Zambia than in Spain, Zambian KwachiZambia’s the Zambian Kwachi will (appreciate /depreciate) and Zambia’s imports from Spain imports from Spain will (increase/decrease). more Thai bahts are required to buy a dollar 1. If more Thai bahts are required to buy a dollar, baht then the baht has (appreciated/depreciated), & Thai exports to the U.S. Thai exports to the U.S. should (increase/decrease). Latvia’s demand for U.S. Fuzzy W uzzies decrease 2. If Latvia’s demand for U.S. Fuzzy W uzzies decrease, Latvia’s then Latvia’s Lat will (apprec/deprec) & Latvia’s imports from the U.S. imports from the U.S. will (increase/decrease). interest rates are decreasing faster in S.Korea[4 % ] 3. If interest rates are decreasing faster in S.Korea[4 % ] Korean won than in Cuba[8 % ], then the Korean won will (appr/depr) Korea’s exports to Cuba & Korea’s exports to Cuba will (increase/decrease).

Korea buys 2 million fewer American autos 1. If Korea buys 2 million fewer American autos dollarour the dollar would (appreciate/depreciate) & our exports to Korea exports to Korea would (increase/decrease). U.S. interest rates decrease faster 2. If U.S. interest rates decrease faster than dollar Haiti’s, the dollar would (appreciate/depreciate) & our imports our imports would (increase/decrease). prices are dropping more in Mexico 3. If prices are dropping more in Mexico than peso in the U.S., the peso will (appreciate/ depreciate ) Mexico’s exports and Mexico’s exports will (increase/decrease). U.S. growth rate is faster than that of China, 4. If the U.S. growth rate is faster than that of China, dollarU.S. the dollar will (appreciate/depreciate) and U.S. exports to China exports to China will (increase/decrease). dollar price of the renminbi increases 5. If the dollar price of the renminbi increases, the dollarour imports dollar has (appreciated/depreciated) and our imports from China from China will (increase/decrease). Zimbabwe wants tobuy 3 million American Fuzzy Wuzzys 6. If Zimbabwe wants to buy 3 million American Fuzzy Wuzzys, dollarour imports from the dollar (appreciates/depreciates) and our imports from Zimbabwe Zimbabwe should (increase/decrease). bouti price of the dollar increasesbouti 7. If the bouti price of the dollar increases the bouti will their exports (appreciate/depreciate ) and their exports will (increase/decrease).

Djibouti buys 4 mil. more U.S. Fuzzy W uzzies 1. If Djibouti buys 4 mil. more U.S. Fuzzy W uzzies dollar our the dollar would (appreciate/depreciate) & our exports to Djibouti exports to Djibouti would (increase/decrease). U.S. interest rates are increasing f aster 2. If U.S. interest rates are increasing f aster dollar than Cuba’s, the dollar would (appr/depr) & our imports our imports from Cuba would (incr/decr). prices are increasing more in Canada 3. If prices are increasing more in Canada than Canadian l oonie in the U.S., the Canadian l oonie will (appr/depr) Canada’s exports and Canada’s exports will (increase/decrease). U.S. growth rate is slower than that of China 4. If the U.S. growth rate is slower than that of China, dollarU.S. the dollar will (appreciate/depreciate) and U.S. exports exports to China will (increase/decrease). dollar price of the renminbi decreases 5. If the dollar price of the renminbi decreases, the dollarour dollar has (appreciated/depreciated) and our imports imports from China will (increase/decrease). Congo wants to buy 2 million American Piggy Wiggies 6. If the Congo wants to buy 2 million American Piggy Wiggies, dollarour imports from the dollar (appreciates/depreciates) and our imports from the Congo the Congo should (increase/decrease). euro price of the dollar decreaseseuro 7. If the euro price of the dollar decreases the euro will their exports (appreciate/depreciate ) and their exports will (increase/decrease).