ECON 2105 Lecture Notes - Lecture 12: Remittance, Current Account, Capital Outflow
24 Apr 2017
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Econ 2105 - lecture 12: the international economy. One us dollar buys 109 japanese yen: 109 jpy/usd. One us dollar buys 0. 94 euros: 0. 94 eur/usd: but the euro-usd exchange rate is most often quoted as per one euro, so 1. 06 usd/eur. How many euros do you get for us : *0. 94 euros = 1880 euros. This does not tell us about purchasing power! Exchange rates that you read about are nominal exchange rates. The equilibrium exchange rate equalizes currencies bought and sold; it holds for all currencies in all countries: sometimes not everyone can buy and sell currency freely (ex. China: the government (central bank) may also be a major buyer or seller (ex. China: equilibrium implies that payments to the row = payments from the row. Weaker exchange rate may help exporters (when your own currency is weaker relative to other currency, foreigners will purchase goods from your country)
