Global Trade For countries to grade goods and services, they must also trade their currencies. The process of converting one currency to another is known as foreign exchange.

Exchange Rate Each currency traded in the foreign exchange market has an exchange rate The exchange rate indicates the value of one currency in terms of another 1 Dollar = 10 Pesos

Exchange Rates If Americans are buying lots of goods from Mexico, with a high demand for Mexican goods, what will happen to the exchange rate and why?

Exchange Rates Gradually it will take more dollars to buy the same number of pesos 1=9 When once currency loses value relative to another currency, economics says depreciation has occurred

Exchange Rates Mexicans are buying lots of goods services from America, rising demand for American goods What happens to exchange rate??

Exchange Rates When one currency gains value relative to another currency, economists say appreciation has occurred. If comparing two currencies, appreciation of one means depreciation of the other

Exchange Rates When a currency appreciates in value, it said to get stronger Strong dollar has a higher exchange rate with other currencies

Weak Dollar Foreign goods and services costs more in dollars (have to pay in foreign currency) Tends to discourage imports into the U.S. How would a weak dollar affect U.S. exports?

Weak Dollar Consumers? Producers who export products?

Trade Surplus If a country exports more than it imports, it has a positive balance of trade, or a trade surplus If it imports more than it exports, it has a negative trade balance, or trade deficit In 2007 U.S. had a 700 billion trade deficit