Class Notes (835,529)
Canada (509,225)
Economics (490)
ECON 105 (187)
Lecture 10

Lecture 10 - Foreign Exchange

6 Pages
107 Views
Unlock Document

Department
Economics
Course
ECON 105
Professor
Eldar Sehic
Semester
Summer

Description
Foreign Exchange Balance of Payments (BOP) Records the country’s transactions with the rest of the world BOP Components Net Exports (NX): Exports (+) Imports (-) Net Receipts on income earned on assets (NR): Receipts (+) Payments (-) Capital Flows (KF): Inflows (+) Outflows (-) Official Financing Account (OFA): Sales of Foreign Currency (+) Purchases of Foreign Currency (-) BOP = NX + NR + KF + OFA = 0 “Balance of Payments” (“BOP”) Commonly heard in public “BOP” = NX + NR + KF If “BOP” > 0: It’s a “BOP” surplus, which implies that OFA < 0 (country makes more purchases than sales of Foreign Currency) If “BOP” < 0: It’s a “BOP” deficit, which implies that OFA > 0 (country makes more sales than purchases of Foreign Currency) Foreign Currency Market Exchange Rate (e): Price of Foreign Currency (FC) e FCS ē FCD FC ē: Market (flexible) exchange rate Changes in FCD: (Not due to changes in e) If imports ↑ or if there is capital outflow, then FCD moves right e FCS e2 e 1 FCD 2 FCD1 FC Changes in FCS: (Not due to changes in e) If exports ↑ or if there is capital inflow, then FCS moves right e FCS 1 FCS 2 e 1 e 2 FCD FC Fix Fixed Exchange Rate (e ) Determined by central bank buying and selling FC Fixing e above ē at e :x e FCS eFix ē FCD FC To fix e at e , the central bank buys FC to satisfy the ex
More Less

Related notes for ECON 105

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit