MGEA06H3 Lecture Notes - Demand Curve, Capital Outflow, David Buss

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MGEA06H3 Full Course Notes
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MGEA06H3 Full Course Notes
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N discuss factors that affect demand for and supply of a country"s currency. N use of the demand and supply curves of c$ in the foreign exchange market to determine the value of c$. N go through a numerical example to show how a change in exchange rate affects the economy. The foreign exchange market is the market where we exchange one currency for another, and the price in the market is the exchange rate, e. In our class, exchange rate is quoted as the # of us$ needed to exchange 1 c$, eus$ per c$: the relationship between these two quotations is: Ec$ per us$ = 1 / eus$ per c$ Similar to other markets, the exchange rate is determined by the forces of demand for and supply of c$ internationally. There is a big difference between the exchange rate and interest rate, do don"t get yourself confused! Foreign exchange market demand for c$ vs. (domestic) demand for money.

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