EC202 1nd Edition Lecture 35Outline of Last Lecture I. Foreign currency II. Exchange ratesIII. Trade Outline of Current Lecture II. Nominal exchange ratesIII. Changes in valueCurrent Lecture-Nominal exchange rate-The rate at which one national currency trades for another-Suppose one U.S. dollar can be exchanged for 100 Japanese yen-The exchange rate, e, is 100 yen/dollar-The amount of foreign currency needed to purchase one dollar – 100 yen-The number of dollars needed to purchase one unit of the foreign currency – $1/100 or one cent-(1/e) = one cent/yen-The symbol “e ” will be used for the nominal exchange rate-Defined as the number of units of the foreign currency that the domestic currency will buy-For U.S.: 110 yen/dollar, 10 pesos/dollar, etc.-changes in value-Appreciation-An increase in the value of a currency relative to other currenciesThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.-An increase in e-An appreciation of the home currency -Depreciation-A decrease in the value of a currency relative to other currencies-A decrease in e-A depreciation of the home
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