Macroeconomics and its influence on international trade
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Macroeconomics and Its Influence on International Trade. AN EXCHANGE RATE CAN BE CONSIDERED AS A PRICE. WITH A SUPPLY CURVE AND A DEMAND CURVE. How are exchange rates quoted?. Most are quoted in Nations A’s currency in terms of U.S. dollars. P f = P us *k. With the Japanese Yen = 98

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AN EXCHANGE RATE CAN BE CONSIDERED AS A PRICE.

WITH A SUPPLY CURVE AND A DEMAND CURVE



Most are quoted in nations a s currency in terms of u s dollars p f p us k
Most are quoted in Nations A’s currency in terms of U.S. dollars.Pf= Pus*k

With the Japanese Yen = 98

One $ will purchase 98 yen

98 = 1*98

Or One $ will purchase 14 Mexican Pesos


In the case of the British Pound and the Euro dollars.the exchange is quoted differently.One Euro = 1.33 dollars One British Pound = 1.45 dollars



British pound
British Pound dollars.


A bushel of corn say at $4.00 in dollars.June 2008 would cost a German Processor 2.5Euros (1 euro = $1.67)That same $4.00/bushel wheat would cost the German Processor 3.2 Euros in February 2009 (1 euro = $1.26)


A 10 Euro bottle of wine would cost an American consumer $16.00 June 2008That same bottle of wine would cost the American $12.60 in February of 2009


FOREIGN INTERESTS (INDIVIDUALS AND BUSINESSES) MUST EXCHANGE THEIR CURRENCY IN ORDER TO MAKE AN INTERNATIONAL TRANSACTION


ASSUME TWO COUNTRIES -- FRANCE AND U.S. THEIR CURRENCY IN ORDER TO MAKE AN INTERNATIONAL TRANSACTION

IF THE FRENCH WANT TO MAKE AND INTERNATIONAL TRANSACTION THEY WILL HAVE TO CONVERT THE EURO TO $


THE DEMAND FOR DOLLARS COMES FROM FRENCH PEOPLE WHO WISH TO PURCHASE U.S. GOODS AND SERVICES OR...

WANT TO INVEST IN U.S. ASSETS


THE SUPPLY OF U.S. DOLLARS COMES FROM FRENCH WHO HAVE SOLD THEIR GOODS, SERVICES OR ASSETS TO AMERICANS


Wheat THEIR GOODS, SERVICES OR ASSETS TO AMERICANS

Dollar Index


A LITTLE HISTORY: THEIR GOODS, SERVICES OR ASSETS TO AMERICANS

THE BRETTON WOODS AGREEMENT (1945)

THE U.S. DOLLAR WAS FIXED RELATIVE TO THE PRICE OF GOLD ( THE GOLD STANDARD)


THE RESULT OF THE GOLD STANDARD WAS TO FIX THE EXCHANGE RATES

THE CENTRAL BANKS OF EACH COUNTRY WERE RESPONSIBLE TO MAINTAIN THE RATE


THE BRETTON WOODS SYSTEM LASTED TO 1973 RATES

HIGH INFLATION

OUTFLOW OF U.S. DOLLARS FOR OIL

THE DOLLARS WAS OVERVALUED AND THE COST OF MAINTAINING WAS HIGH


Bond Prices RATES

Higher Bond Prices

Lower Interest Rates


$1 = 8 Yuan RATES

1 Yuan = 12.5 cents

$10/bu soybeans cost Chinese buyer 800 Yuan

$1 = 7 Yuan

1 Yuan = 14 cents

$10/bu soybeans cost

Chinese buyer 700 Yuan


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