First edition Global Economic Issues and Policies PowerPoint Presentation by Charlie Cook Copyright © 2004 South-Western/Thomson Learning. All rights reserved.

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First edition Global Economic Issues and Policies PowerPoint Presentation by Charlie Cook Copyright © 2004 South-Western/Thomson Learning. All rights reserved. Chapter 6 Balance of Payments and Foreign Exchange Markets

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–2 Table 6-1a Summary Statements of the U.S. Balance of Payments Source: Bureau of Economic Analysis, International Accounts Data, U.S. Department of Commerce.

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–3 Table 6-1b Summary Statements of the U.S. Balance of Payments (cont’d) Source: Bureau of Economic Analysis, International Accounts Data, U.S. Department of Commerce.

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–4 Table 6-2 Recording a U.S. Firm’s Export in the Balance-of-Payments Accounts

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–5 Figure 6-1 How Foreign Exchange Transaction Is Conducted

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–6 Table 6-3 Spot Rates for Currency Exchange Source:

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–7 Table 6-4 Cross-Rate Table Based on Rates in Table 6-3 To calculate the British-pound-per-Euro cross rate, divide the dollar rate of exchange for the Euro by the dollar exchange rate for the British pound. Thus, the pound-euro cross rate equals: = =

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–8 Figure 6-2 Consumer Price Indexes in the United States and the European Monetary Union Sources: and

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–9 Figure 6-3 Effective Exchanges Rates Since 1980 Source:

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–10 Figure 6-4 The Demand for the Euro Decrease in the exchange rateIncrease in the demand for euros

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–11 Figure 6-5 The Dollar Demand-Euro Supply Relationship Increase in the demand for dollarsIncrease in the supply of euros

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–12 Figure 6-6 The Equilibrium Exchange Rate The market-clearing free exchange rate at which the quantity of a currency demanded is equal to the quantity supplied.

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–13 Table 6-5 Basic Foreign Exchange Derivative Instruments

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–14 Figure 6-7 A Sample Currency Swap Currency Swap An exchange of payment flows denominated in different currencies.

Copyright © 2004 South-Western/Thomson Learning. All rights reserved.6–15 Questions and Problems - 3)