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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Macroeconomics and its influence on international trade

Macroeconomics and Its Influence on International Trade.


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

How are exchange rates quoted?


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


Macroeconomics and its influence on international trade

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


Euro weekly bar chart

Euro = Weekly Bar Chart


British pound

British Pound


Macroeconomics and its influence on international trade

A bushel of corn say at $4.00 in 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)


Macroeconomics and its influence on international trade

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


Macroeconomics and its influence on international trade

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


Macroeconomics and its influence on international trade

ASSUME TWO COUNTRIES -- FRANCE AND U.S.

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


Macroeconomics and its influence on international trade

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


Macroeconomics and its influence on international trade

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


Macroeconomics and its influence on international trade

Wheat

Dollar Index


Macroeconomics and its influence on international trade

A LITTLE HISTORY:

THE BRETTON WOODS AGREEMENT (1945)

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


Macroeconomics and its influence on international trade

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

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


Macroeconomics and its influence on international trade

THE BRETTON WOODS SYSTEM LASTED TO 1973

HIGH INFLATION

OUTFLOW OF U.S. DOLLARS FOR OIL

THE DOLLARS WAS OVERVALUED AND THE COST OF MAINTAINING WAS HIGH


Macroeconomics and its influence on international trade

Bond Prices

Higher Bond Prices

Lower Interest Rates


Macroeconomics and its influence on international trade

$1 = 8 Yuan

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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