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4. Overview of Exchange Rates Factors Impacting Exchange Rates Financial Management Outside of the U.S. > Factors Impacting Exchange Rates Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance?campaign_content=book_192_section_138&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=di rect&utm_source=boundless

5. An exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country's currency in terms of another currency. Quotes using a country's home currency as the price currency are known as direct quotation. Quotes using a country's home currency as the unit currency are known as indirect quotation. Using direct quotation, if the home currency is strengthening, then the exchange rate number decreases. There are many factors that impact exchange rates, such as inflation, interest rates, balance of payments, and government policy. Overview of Exchange Rates Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/financial-management-outside-of-the-u-s-21/factors-impacting-exchange- rates-138/overview-of-exchange-rates-559- 8404?campaign_content=book_192_section_138&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Exchange rates View on Boundless.com Financial Management Outside of the U.S. > Factors Impacting Exchange Rates

6. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

7. Key terms arbitrage Any market activity in which a commodity is bought and then sold quickly, for a profit which substantially exceeds the transaction cost balance of payment an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The BoP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. Interest rate parity a no-arbitrage condition representing an equilibrium state under which investors will be indifferent to interest rate available on bank deposits in two countries. Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Management Outside of the U.S.

8. Exchange rates Exchange rates displayed in Thailand Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Exchange rate." GNU FDL http://en.wikipedia.org/wiki/Exchange_rate View on Boundless.comGNU FDLhttp://en.wikipedia.org/wiki/Exchange_rateView on Boundless.com Financial Management Outside of the U.S.

9. Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Management Outside of the U.S. Assume Japan's inflation rates increases while the U.S.'s balance of payment (BOP) deficit increases. How will this influence the yen-dollar exchange rate? A) Inflation will increase the yen's value while the BOP shift will decrease the dollar's value. B) Inflation will decrease the yen's value while the BOP shift will decrease the dollar's value. C) Inflation will decrease the yen's value while the BOP shift will increase the dollar's value. D) Inflation will increase the yen's value while the BOP shift will increase the dollar's value.

10. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Financial Management Outside of the U.S. Assume Japan's inflation rates increases while the U.S.'s balance of payment (BOP) deficit increases. How will this influence the yen-dollar exchange rate? A) Inflation will increase the yen's value while the BOP shift will decrease the dollar's value. B) Inflation will decrease the yen's value while the BOP shift will decrease the dollar's value. C) Inflation will decrease the yen's value while the BOP shift will increase the dollar's value. D) Inflation will increase the yen's value while the BOP shift will increase the dollar's value.

11. Attribution Wikipedia. "Exchange rate." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Exchange_rateCC BY-SA 3.0http://en.wikipedia.org/wiki/Exchange_rate Wikipedia. "Interest rate parity." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Interest%20rate%20parityCC BY-SA 3.0http://en.wikipedia.org/wiki/Interest%20rate%20parity Wikipedia. "balance of payment." CC BY-SA 3.0 http://en.wikipedia.org/wiki/balance%20of%20paymentCC BY-SA 3.0http://en.wikipedia.org/wiki/balance%20of%20payment Wikipedia. "arbitrage." CC BY-SA 3.0 http://en.wikipedia.org/wiki/arbitrageCC BY-SA 3.0http://en.wikipedia.org/wiki/arbitrage Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Management Outside of the U.S.