[“S&D” determine currency strengths]

1. [“S&D” determine currency strengths] Exchange of Currencies [What if the U.S. wants more Mazdas from Japan?] United States Japan

2. [“S&D” determine currency strengths] Exchange of Currencies [What if the Europeans want more American cars?] United States Europe

3. Appreciation/Depreciation History Japanese TV cost Y115,000 1. A.$1= Y140 [TV would cost$821.43] B.$1= 80 [TV would cost$1437.50] C.$1= 107 [TV would cost$1074.77] 2. A.1 Euro=$1.34 (Today) B.1 Euro=86 cents[in 2002] C.1 Euro=$1.51[in 2008] 3.$1=1.10Loonies 4. A.$1=11,764rupiahs[Today] B.$1=8417rupiahs[in 2011] 5. A.$1 =P13.24[Today] B.$1=P11.47[in 2011] 6. A. TODAY$1= W1035.41 B. 2009$1= W1256.60 And –$1 = 20,918 Vietnam dongs Indonesian Rupiah Mexican Peso Korean Won

4. THE FOREIGN EXCHANGE MARKET CurrencyAppreciationandDepreciation International value of dollar falls (dollar depreciates) Exports increase Imports decrease Dollar price of another currency [yen] increases [$1 to $1.50] Equals D D2 S $1.50 $1.00 .50 D A D3 Dollar price of another Currency [yen] decreases [$1 to .50] # of Yen International value of dollar rises (dollar appreciates) Imports increase Exports decrease Equals

5. Appreciation Depreciation 1. Increase in Taste 2. Increase Interest Rates 3. Decrease in PL 4. Decrease in Income 1. Decrease in Taste 2. Decrease Interest Rates 3. Increase in PL 4. Increase in Income Therefore, it takes more pennies, so the dollar is weaker. [$ price increases] Therefore, it takes fewer pennies, so the dollar is stronger [$ price decreases]

6. Appreciation of the Dollar Increase in tastefor U.S. goods Increase in U.S.Interest Rates Decreasein U.S.Price Level Decrease in U.S. Growth Rate FOREIGN EXCHANGE MARKET The Market for Dollars Exchange Rate: $1 = ¥100 Decrease in U.S. Currency Price D1$ S$ D2 P Y looking for$’s $’s looking for Y Y150 E2 D Yen Price of Dollar Yen depreciates Y100 E1 A Yen appreciates Y50 E3 D3 Depreciation of Dollar Decrease in Taste Decrease in In. Rates Increase Price Level Increase Growth Rate 0 QE D A Quantity of Dollars Increase in Currency Price

7. Graph Both Countries D2 D S S D S2 1. Show how an “ increase in taste” for Japanese cars would affect the market for the Yen and the Dollar. Appreciate e2 Yen Price of $ $ Price of Yen e1 e1 Depreciate e2 # of Yen # of Dollars D2 D S D S S2 2. How would an increase in Mexico’s real interest rate affect the value of the Peso and the value of the Euro? Appreciate e2 Euro Price of peso Peso Price of Euro e1 e1 Depreciate e2 # of Pesos # of Euros S2 D S D S e2 D2 3. How would high inflation in South Korea affect the market for the Won and the Dollar? Won Price of $ $ Price of Won Depreciate Appreciate e1 e1 e2 # of Dollars # of Won D D D2 S S S2 Appreciate 4. How would a U.S. economic expansion affect the value of the Dollar and the value of the Yen? e2 Yen Price of $ $ Price of Yen e1 e1 Depreciate e2 # of Yen # of Dollars

8. Practice Quiz 1 1. If more Thai bahts are required to buy a dollar, then the baht has (appreciated/depreciated), & Thai exports to the U.S. should (increase/decrease). 2. If Latvia’s demand for U.S. Fuzzy Wuzzies decrease, then Latvia’s Lat will (apprec/deprec) & Latvia’s imports from the U.S. will (increase/decrease). 3. If interest rates are decreasing faster in S.Korea[4%] than in Cuba[8%], then the Korean won will (appr/depr) & Korea’s exports to Cuba will (increase/decrease). 4. If Malaysia’s price level is decreasing faster than that of Brazil, the Malaysian ringgit will (apprec/deprec) & Malaysia’s exports to Brazil will (increase/decrease). 5. If growth rate is less rapid in Djibouti than in Swaiziland, then the Djibouti bouti will (appreciate/depreciate) and Djibouti’s exports will (increase/decrease). 6. If the Euro price of the S. Korean won decreases, the Eurohas (apprec/deprec) & European exports to Korea will (incr/decr). 7. If interest rates are increasing faster in Zambia than in Spain, the Zambian Kwachi will (appreciate /depreciate) and Zambia’s imports from Spain will (increase/decrease).

9. 1. If Korea buys 2 million fewer American autos the dollar would (appreciate/depreciate)& our exports to Korea would (increase/decrease). 2. If U.S. interest ratesdecrease fasterthan Haiti’s, the dollar would (appreciate/depreciate)& our imports would (increase/decrease). 3. If prices are dropping more in Mexicothan in the U.S., the peso will (appreciate/depreciate) and Mexico’s exports will (increase/decrease). 4. If the U.S. growth rate is faster than that of China, the dollar will (appreciate/depreciate) and U.S. exports to China will (increase/decrease). 5. If the dollar price of the renminbi increases, the dollar has (appreciated/depreciated) and ourimports from China will (increase/decrease). 6. If Zimbabwe wants tobuy 3 million American Fuzzy Wuzzys, the dollar (appreciates/depreciates) and our imports from Zimbabwe should (increase/decrease). 7. If the bouti price of the dollar increases the bouti will (appreciate/depreciate) and their exports will (increase/decrease). Practice Quiz 2

10. 1. If Djibouti buys 4 mil. more U.S.Fuzzy Wuzzies the dollar would (appreciate/depreciate) & our exports to Djibouti would (increase/decrease). 2. If U.S. interest rates are increasing faster than Cuba’s, the dollar would (appr/depr)& our imports from Cuba would (incr/decr). 3. If prices are increasing more in Canadathan in the U.S., the Canadian loonie will (appr/depr) and Canada’s exports will (increase/decrease). 4. If the U.S. growth rate is slower than that of China, the dollar will (appreciate/depreciate) and U.S. exports to China will (increase/decrease). 5. If the dollar price of the renminbi decreases, the dollar has (appreciated/depreciated) and our imports from China will (increase/decrease). 6. If the Congo wants to buy 2 million American Piggy Wiggies, the dollar (appreciates/depreciates) and our imports from the Congo should (increase/decrease). 7. If the euro price of the dollar decreases the euro will (appreciate/depreciate) and their exports will (increase/decrease). Practice Quiz 3