ECON 105 1nd Edition Lecture 62 Outline of Last Lecture I. The Financial AccountII. Why Is Balance of Payments Always Zero?III. Foreign Exchange Market and Exchange Rates Outline of Current Lecture I. Exchange Rate II. Where Are Exchange Rates Determined?Current LectureI. Exchange Rate a. Suppose exchange rate changed to 1.2 $/euros i. Depreciation of dollar 1. Keep the same price for French (230 euros) a. Then it received about 230 euros x 1.2 $ = $276i. Loss of $24 per iPhoneii. Apple needs to receive $300 per iPhone1. What would have to be euro price of French so that Apple could get $300 per phone?a. $300/1.2 = 250 euros b. Law of Demand says the amount of iPhones sold in France will decrease i. This results in lower profits ii. Stronger dollar hurts our companies II. Where Are Exchange Rates Determined?a. Determined on a market i. Supply and Demand b. Foreign Exchange Market i. Over the counter market 1. Large banks selling and buying foreign currencies 2. Buy and sell deposits denominated in different currencies c. Suppose Bank of America exchanged 100 million euro deposits for 120 million dollar deposits with Swiss banki. 1.2 $/euros d. Demand For Dollars:These 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.i. Foreign firms and consumers try to buy US goods and services ii. Foreign firms and consumers are trying to buy US assetsiii. Speculators who bet against the future value of the dollar 1. Anyone who expects the dollar to become more valuable in the future (appreciate) will try to buy it now (demand)e. Supply For Dollar i. Ex: US tourists to
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