Unformatted text preview:

Chapter 34IntroductionLearning ObjectivesLearning Objectives (cont'd)Chapter OutlineDid You Know That...The Balance of Payments and International Capital MovementsThe Balance of Payments and International Capital Movements (cont'd)Table 34-1 Surplus (+) and Deficit (–) Items on the International AccountsSlide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Table 34-2 U.S. Balance of Payments Account, 2007 (in billions of dollars)Example: Taking Multinational Firms into Account in Trade StatisticsExample: Taking Multinational Firms into Account in Trade Statistics (cont'd)Slide 21Slide 22Slide 23Slide 24Slide 25Figure 34-1 The Relationship Between the Current Account and the Capital AccountSlide 27Slide 28Slide 29Slide 30Determining Foreign Exchange RatesDetermining Foreign Exchange Rates (cont'd)Slide 33Slide 34Slide 35Slide 36Figure 34-2 Deriving the Demand for Euros, Panel (a)Figure 34-2 Deriving the Demand for Euros, Panel (b)Slide 39Figure 34-2 Deriving the Demand for Euros, Panel (c)Slide 41Figure 34-2 Deriving the Demand for Euros, Panel (d)Figure 34-2 Deriving the Demand for Euros, Panel (e)Figure 34-3 The Supply of European Monetary Union EurosFigure 34-4 Total Demand for and Supply of European Monetary Union EurosFigure 34-5 A Shift in the Demand ScheduleFigure 34-6 A Shift in the Supply of European Monetary Union EurosInternational Example: One U.S. Firm’s Key Role in the Market for Chinese YuanInternational Example: One U.S. Firm’s Key Role in the Market for Chinese Yuan (cont'd)Slide 50The Gold Standard and the International Monetary FundThe Gold Standard and the International Monetary Fund (cont'd)Slide 53Slide 54Slide 55Slide 56Fixed versus Floating Exchange RatesFigure 34-7 Current Foreign Exchange Rate ArrangementsFixed versus Floating Exchange Rates (cont'd)Figure 34-8 A Fixed Exchange RateSlide 61Slide 62Slide 63Slide 64Slide 65Slide 66Slide 67Slide 68Issues and Applications: The Currency Most Traded in Foreign Exchange MarketsFigure 34-9 Currency Pairings Involved in Global Foreign Exchange Market TradesSummary Discussion of Learning ObjectivesSummary Discussion of Learning Objectives (cont'd)Slide 73Slide 74Slide 75End of Chapter 34Chapter 34Exchange Rates and the Balance of PaymentsCopyright © 2008 Pearson Addison Wesley. All rights reserved.34-2IntroductionThe foreign exchange market is the market in which individuals, businesses, and governments buy and sell national currencies.The prices determined in this market, which are the rates at which currencies exchange for other currencies, are called exchange rates.Copyright © 2008 Pearson Addison Wesley. All rights reserved.34-3Learning Objectives•Distinguish between the balance of trade and the balance of payments•Identify the key accounts within the balance of payments•Outline how exchange rates are determined in the markets for foreign exchangeCopyright © 2008 Pearson Addison Wesley. All rights reserved.34-4Learning Objectives (cont'd)•Discuss factors that can induce changes in equilibrium exchange rates•Understand how policymakers can go about attempting to fix exchange rates•Explain alternative approaches to limiting exchange rate variabilityCopyright © 2008 Pearson Addison Wesley. All rights reserved.34-5Chapter Outline•The Balance of Payments and International Capital Movements•Determining Foreign Exchange Rates•The Gold Standard and the International Monetary Fund•Fixed versus Floating Exchange RatesCopyright © 2008 Pearson Addison Wesley. All rights reserved.34-6Did You Know That...•There are fundamental factors that determine the dollar value of the approximately 170 currencies around the world?•Keeping track of international financial transactions that the exchange of these currencies helps facilitate will help you understand these factors?Copyright © 2008 Pearson Addison Wesley. All rights reserved.34-7The Balance of Payments and International Capital Movements•Balance of TradeThe difference between exports and imports of goodsCopyright © 2008 Pearson Addison Wesley. All rights reserved.34-8The Balance of Payments and International Capital Movements (cont'd)•Balance of PaymentsA system of accounts that measures transactions of goods, services, income and financial assets between domestic households, businesses, and governments and residents of the rest of the world during a specific time periodCopyright © 2008 Pearson Addison Wesley. All rights reserved.34-9Table 34-1 Surplus (+) and Deficit (–) Items on the International AccountsCopyright © 2008 Pearson Addison Wesley. All rights reserved.34-10The Balance of Payments and International Capital Movements (cont'd)•Accounting IdentitiesValues that are equivalent by definitionCopyright © 2008 Pearson Addison Wesley. All rights reserved.34-11The Balance of Payments and International Capital Movements (cont'd)•Accounting identitiesWhen family expenditures exceed income, the family must be doing one of the following1. Reducing its money holdings, or selling stocks, bonds, or other assets2. Borrowing3. Receiving gifts from friends or relatives4. Receiving public transfers from a governmentCopyright © 2008 Pearson Addison Wesley. All rights reserved.34-12The Balance of Payments and International Capital Movements (cont'd)•Accounting identitiesUltimately, net lending by households must equal net borrowing by businesses and governments.Copyright © 2008 Pearson Addison Wesley. All rights reserved.34-13The Balance of Payments and International Capital Movements (cont'd)•DisequilibriumIf expenditures exceed income, the situation cannot continue indefinitely.•EquilibriumHouseholds, businesses, and governments must eventually reach equilibrium.Copyright © 2008 Pearson Addison Wesley. All rights reserved.34-14The Balance of Payments and International Capital Movements (cont'd)•An accounting identity among nationsWhen people from different nations trade or interact, certain identities or constraints must also hold.Let’s look at the three categories of the balance of payments transactions.Copyright © 2008 Pearson Addison Wesley. All rights reserved.34-15The Balance of Payments and International Capital Movements (cont'd)•Three categories of balance of payments transactions1. Current account transactions2. Capital account transactions3. Official reserve account transactionsCopyright © 2008 Pearson Addison Wesley. All rights reserved.34-16The Balance of Payments


View Full Document

The Citadel ECON 202 - Exchange Rates

Download Exchange Rates
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Exchange Rates and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Exchange Rates 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?