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Foreign Exchange rates. SSEIN3- Explain how changes in exchange rates can have an effect of purchasing power. Exchange Rate. The exchange rate measure how much currency in one country is worth to another nation The foreign exchange market is where currencies are bought and sold.
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Foreign Exchange rates • SSEIN3- Explain how changes in exchange rates can have an effect of purchasing power
Exchange Rate • The exchange rate measure how much currency in one country is worth to another nation • The foreign exchange market is where currencies are bought and sold
Types of Exchange rates • Fixed: value of the currency if fixed or tied to another countries currency • ****Floating: determined by supply and demand
Purchasing Power • The actual amount of goods and services that can be bought with any given amount of money.
Currency Appreciation • Purchasing Power or Value of a dollar becomes greater compared to other countries • Helps – Domestic consumers buying foreign products Foreign producers (importers) • Hurts- Domestic producers (exporters) Foreign Consumers
Currency Depreciation • In comparison to other countries, a countries currency becomes less valuable and has less purchasing power. • Helps- Domestics Producers (exporters) Foreign Consumers • Hurts- Foreign Producers (importers) Domestic consumers buying foreign products
Factors that effect Currency • Supply and Demand!!!!!! • Interest rate on investments • Productivity • Demand for Currency in other nations
Balance of Trade • It is the difference between the monetary value of exports and imports in the country • Exports - Imports= Balance of Trade Unfavorable Balance Favorable balance
Balance of Payments • Balance of Payments: the difference between money a country pays for exports receives for imports
Balance of Payments • Trade Deficit: occurs when a country pays more for imports than it makes on exports • Trade Surplus: occurs when a country earn more on exports than it pays for imports