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Chapter 25

ECON102 Chapter Notes - Chapter 25: Foreign Exchange Market, The Foreign Exchange, Canadian Dollar


Department
Economics
Course Code
ECON102
Professor
Maryann Vaughan
Chapter
25

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Textbook: Chapter 25: The Exchange Rate and the Balance of Payments
The Foreign Exchange Market:
-Foreign Currency 
o
Trading Currencies:
-Foreign Exchange Market 
o


 !"#!
 !$"!!
#!$%!!&
Exchange Rates:
-Exchange Rate'
o!
()*+,-./
$',-(!!
-)rise!!apprecia"on of the dollar
-)fall!!deprecia"on of the dollar
An Exchange Rate is a Price:
-)pricethe price of 1 currency in terms of another
o0!!FEM
$compe""ve market
The Demand for One Money is the Supply of Another Money:
-1!'!'(!!demand(!!
supply 2
Demand in the Foreign Exchange Market:
-$quan"ty of Canadian dollars demanded is the amount that traders plan to buy "
"
-
o$3%mvmt along the curve)
o1!*(%shi+s the curve)
o3((%shi+s the curve)
o$3(shi+s the curve)
The Law of Demand for Foreign Exchange:
-$highersmaller4 (!!
-$!!derived demand
o15#!!''5#6
The Exchange Rate:
-74 (!!8
o9
o:;9
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Exports E/ect:
-$larger "!(greater 4 (!!

o$lower the price of the exchange rategreater is the value of Canadian exportsgreater is
the quan"ty of Canadian dollars demanded
falls4 (!!increases
Expected Pro0t E/ect:
-$larger;!(!!greater 4 (!!

-;
-$lowerlarger;(!!
!greater 4 (!!
The Demand Curve for Canadian Dollars:
-'"(!!
Supply in the Foreign Exchange Market:
-$quan"ty of Canadian dollars supplied is the amount that traders plan to sell " 
"
-
o$3%mvmt along the curve)
o(*(shi+s the curve)
o3(((shi+s the curve)
o$3(shi+s the curve)
The Law of Supply of Foreign Exchange:
-higher the price of exchange rate, greater is the quan"ty of Canadian
dollars supplied 
o<<8<(!!4 (!!
!!!!increases
The Exchange Rate:
-74 (!!!8
o9
o:;9
Imports E/ect:
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