1. EXCHANGE RATES

2. The price at which one currency can be exchanged/traded for another
EXCHANGE RATE
The price at which one currency can be exchanged/traded for another

4. 1. Actors in the Foreign Exchange Market t______________________ g______________________ s______________________ i______________________ 2. Items affecting a currency rate: _________________________ law _______________interest rates _______________situation ______________indicators: ______ _________

5. Purchasing power parity (PPP)
A rate of exchange calculated for two currencies so that the amount paid for a range of goods and services in both countries is the same

6. FOREIGN EXCHANGE RATES
Necessary for foreign trade/economic transaction
Determined by demand and supply
(tourism,
investment
import/export
trade in currencies)

7. A strong kuna is bad for exporters, good for importers
the increased kuna > more expensive exports > fewer sales
> fewer profits
the strong kuna > cheaper import of foreign products
> cheaper import of raw materials cheaper
> the production costs lower
> must reduce domestic prices
> lower profits
fewer exports more imports
bad Balance of Payments

8. Demand – when we purchase foreign
goods/services
Supply – when we export
Market forces move the rate up or down to balance
the inflows and outflows of a currency

9. output/inflation/foreign trade governments try to regulate
exchange rates affect
output/inflation/foreign trade
governments try to regulate
exchange markets to improve foreign trade
devaluation = decrease the value of a currency in a fixed system
revaluation = increase the value of a currency in a fixed system
appreciation = increase in value over a period of time
depreciation = fall in the value over a period of time

10. Convertible currency
= money of one country that can easily be changed into the money of another country, especially into a strong currency (the dollar, the euro, the pound, the yen)

11. Pegged currencies
to peg = to fix against something (gold, another currency) soft currencies (kuna, pesos…) must be pegged to hard currencies

12. EXCHANGE RATE SYSTEMS
1. The gold standard 2. Freely floating exchange rates 3. Managed exchange rates

13. 1. THE GOLD STANDARD the Bretton Woods agreement, 1944
fixed exchange rates defined in
terms of gold and the US dollar
currencies could only be adjusted
by the IMF (devaluated/revaluated)
abandoned in 1971 (not enough gold)

14. 2. FLOATING EXCHANGE RATES
determined by supply and demand
reflect a country’s balance of payments
and rate of inflation
currency speculation, the value of currencies is constantly fluctuating on foreign exchange markets

15. 3. MANAGED EXCHANGE RATES
governments and central banks influence the level of their currencies when necessary
governments buy or sell in order to increase or
decrease the value of their currencies
(use their foreign currency reserves)

16. COMMON CURRENCY (SINGLE CURRENCY)
the euro – 2002
stable and certain economic environment

17.
What is the Forex Market?
What happens with changing economies?
Give an example with the kuna and the euro.

18. Gold ________________ ended in the early 1970s.
ADD APPROPRIATE WORDS TO THESE SENTENCES: revaluation, floating, managed, speculators, convertibility, peg, central
Gold ________________ ended in the early 1970s.
In fact we have ___________ floating exchange rates, because governments and __________banks sometimes intervene on currency markets.
Another verb for fixing exchange rates against something else is to ________ them.
Increasing the value of an otherwise fixed exchange rate is called ___________________.
A currency can appreciate if lots _______________ buy it.
In most western countries there is a system of ___________exchange rates determined by supply and demand.

19. Gold convertibility ended in the early 1970s.
In fact we have managed floating exchange rates, because governments and central banks sometimes intervene on currency markets.
Another verb for fixing exchange rates against something else is to peg them.
Increasing the value of an otherwise fixed exchange rate is called revaluation.
A currency can appreciate if lots speculators buy it.
In most western countries there is a system of floating exchange rates determined by supply and demand.