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Chapter 13

Chapter 13 Exchange Rates and the Open Economy

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Department
Economics
Course
ECON 1100
Professor
Eveline Adomait
Semester
Winter

Description
Chapter 13: Exchange Rates and the Open Economy Saturday, March 23, 2013 2:06 PM 13.1 Exchange Rates Definitions Nominal Exchange Rate- the rate at which two currencies can be traded for each other Parity- refers to the situation when one unit of one currency trades on the foreign exchange market for one unit of another currency; frequently abbreviated to "par" Appreciation- an increase in the value of a currency relative to another currency Depreciation- a decrease in the value of a currency relative to another currency Flexible Exchange Rate- an exchange rate whose value is not officially fixed but varies according to the supply of and demand for the currency in the foreign exchange market Foreign Exchange Market- the market on which currencies of various nations are traded for one another Fixed Exchange Rate- an exchange rate whose value is set by official government policy 13.2 Determination of Flexible Exchange Rates: Supply and Demand Analysis Definitions Market Equilibrium Value of the Exchange Rate- the exchange rate that equates the quantities of the currency supplied and demanded in the foreign exchange market 13.3 Fixed Exchange Rates Definitions Bretton Woods System- an international monetary system under which most countries pegged their currencies to the US dollar; it operated from the end of WWII to 1971 Devaluation- a reduction in the official value of a currency (in a fixed exchange rate system) Revaluation- an increase in th
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