Measuring the value of trade

• Economie
• Secondary Education

Chapter 17

Section 3: Measuring value of Trade

Pages 526-531

Objectives

Identify the key terms

Analyze the calculation of exchange rate

Discuss the process of finding the value of currency in a world market

Key terms

​In the foreign
exchange market,  the currencies of different  countries are bought and  sold.​​

The foreign
exchange rate is the  price of a currency in  the currencies of other  nations.

​​Rates of Exchange ​​With a fixed rate
of exchange, the  currency of one nation is  fixed, or constant, in relation to other currencies.

The flexible rate of
exchange is a system in  

which the exchange rate
for currency changes as  supply and demand for the
currency changes.​

What is market in which the currencies of different
countries are bought and sold?

1. Fixed exchange rate
2. Foreign exchange rate
3. Foreign exchange market
4. Flexible rate of exchange

What is foreign exchange rate?

Find the difference between fixed exchange rate and flexible exchange rate.

Do all currencies have a fixed rate? If not why?

Answer

No.This is a system in which the exchange rates for currencies change as
the supply of and demand for the currencies change

Suppose you want to buy a book in Germany, where the currency is the euro (∈).
The book costs ∈20, and the seller wants you to pay in euros, but you have U.S. dollars.
To buy the book you must first buy euros. To find out how much ∈20 costs in U.S. dollars, you must know the exchange
rate.1 euro=$1.19

Answer the above question here.

What would be the conversion of euro to BHD?Explain your answer.

​The Federal Reserve keeps a measure
of the international value of the dollar called the trade-weighted value of the dollar. It determines if the dollar is strong or weak as measured against another currency.

What might cause the value of the U.S.
dollar to rise?

Answer

exchanges in the currency
markets; the Fed’s printing more money; foreign investment; and speculation

Why do U.S. imports become less
expensive?

Why do exports become more
expensive?

Answer

because the buyers would
have to spend more of their currency relative to the dollar to buy the good

Ask a question to your friend.