ACC 344 Lecture Notes - Lecture 11: Non-Bank Financial Institution, Interbank, Market Basket
Exchange Rate
- price of one currency in terms of another
- type of asset price
ie: #$/€ or #€/$
Depreciation
- fall in currency price in terms of foreign currency
- currency gets weaker compared to foreign currency, 1 unit of currency buys fewer foreign currencies
or takes more currency to buy 1 foreign currency
- iports see ore epesive to residets of depreiatig urre ↓IM
- exports by depreciating countr see heaper for foreigers ↑EX
- overall, CA ↑ so either surplus ireases or defiit dereases
- terms of trade deteriorate as import prices increase relative to export prices... imports buy fewer
exports
Appreciation
- rise in currency price in terms of foreign currency
- currency gets stronger compared to foreign currency, 1 unit of currency buys more foreign currencies
or takes less currency to buy 1 foreign currency
- iports see heaper to residets of appreiatig urre ↑IM
- exports of appreiatig outr see ore epesive to foreigers ↓EX
- overall, CA ↓ so either surplus dereases or defiit ireases
- terms of trade improve as export prices increase relative to import prices... imports buy more exports
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Foreign Exchange Market
- market in which international currency trade takes place
- actors: commercial banks, corporations, nonbank financial institutions, central banks
Interbank Trading
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Document Summary
Price of one currency in terms of another. Type of asset price ie: #$/ or # /$ Fall in currency price in terms of foreign currency. Currency gets weaker compared to foreign currency, 1 unit of currency buys fewer foreign currencies or takes more currency to buy 1 foreign currency. I(cid:373)ports see(cid:373) (cid:373)ore e(cid:454)pe(cid:374)sive to reside(cid:374)ts of depre(cid:272)iati(cid:374)g (cid:272)urre(cid:374)(cid:272)(cid:455) (cid:894) im(cid:895) Exports by depreciating countr(cid:455) see(cid:373) (cid:272)heaper for foreig(cid:374)ers (cid:894) ex(cid:895) Overall, ca so either surplus i(cid:374)(cid:272)reases or defi(cid:272)it de(cid:272)reases. Terms of trade deteriorate as import prices increase relative to export prices imports buy fewer exports. Rise in currency price in terms of foreign currency. Currency gets stronger compared to foreign currency, 1 unit of currency buys more foreign currencies or takes less currency to buy 1 foreign currency. I(cid:373)ports see(cid:373) (cid:272)heaper to reside(cid:374)ts of appre(cid:272)iati(cid:374)g (cid:272)urre(cid:374)(cid:272)(cid:455) (cid:894) im(cid:895) Exports of appre(cid:272)iati(cid:374)g (cid:272)ou(cid:374)tr(cid:455) see(cid:373) (cid:373)ore e(cid:454)pe(cid:374)sive to foreig(cid:374)ers (cid:894) ex(cid:895) Overall, ca so either surplus de(cid:272)reases or defi(cid:272)it i(cid:374)(cid:272)reases.
