ECON 345 Chapter 2: An Asset Approach
16 May 2011
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*when a country"s currency depreciates, foreigners find its exports are cheaper, domestic residents find imports more expensive! (vice versa) *all else equal, an appreciation of a country"s currency raises relative price of its exports + Exchange of bank deposits denominated in diff currencies www. notesolution. com. Quote to other banks exchange rates at which it is willing to buy currencies f/ them + sell currencies to them. Bring buyers +sellers of currencies together economize on search costs: corporations. Operations in several countries frequently make/receive payments in foreign currencies: nonbank financial institutions. Services involving foreign exchange transactions (ex: mutual fund: central banks. Volume usually not large, but participants in fx market watch central bank actions closely for clues about future macro policies that may affect foreign exchange rates. Assets + asset returns: ppl can hold wealth in many forms stocks, bonds, cash, real estate etc purpose is to transfer purchasing power into the future.
