Module 12: International Economics

What is the approximate daily trading volume in the Foreign Exchange Market?

Over $5 to $8 trillion are traded daily.

In an exchange rate market graph, what is represented on the Y-Axis?

The price or value of one currency in terms of another currency.

If 1 United States Dollar equals 136.97 Japanese Yen, what is the equivalent value of 1 Japanese Yen in United States Dollars?

Approximately $0.0073 United States Dollars (1/136.97).

What is currency 'appreciation'?

An increase in the value of a currency in terms of another currency.

What is currency 'depreciation'?

A decrease in the value of a currency in terms of another currency.

If the exchange rate changes from 1 USD = 134 Yen to 1 USD = 155 Yen, the U.S. dollar has _____.

appreciated

If the exchange rate changes from 1 USD = 134 Yen to 1 USD = 155 Yen, the Japanese yen has _____.

depreciated

What is the primary reason for demanding a foreign currency?

To obtain goods and services from the country that uses that currency.

The demand curve for a foreign currency is downward sloping because as the currency becomes cheaper, foreign goods become _____ expensive, leading to a higher quantity demanded.

less

A Japanese laptop costs ¥100,000. If the exchange rate is $0.015 USD per 1 Yen, what is the price of the laptop in U.S. dollars?

The price is $1,500 USD (100,000 Yen * $0.015/Yen).

Given the demand function for laptops is Q = 1,100

(2/3) * P_USD, how many laptops are demanded if the price is $1,500?

If 100 laptops are demanded at a price of ¥100,000 each, what is the total quantity of Yen demanded to make this purchase?

A total of 10,000,000 Yen is demanded (100 laptops * 100,000 Yen/laptop).

When a country's currency is cheaper (depreciates), what happens to its exports?

Exports rise because its goods are now cheaper for foreign buyers.

When a country's currency is cheaper (depreciates), what happens to its imports?

Imports fall because foreign goods are now more expensive for domestic buyers.

What is the overall effect on a nation's net exports when its currency depreciates?

Net exports rise (exports increase and imports decrease).

If a home currency appreciates, what happens to the price of goods and services from other countries?

Goods and services from other countries become cheaper.

What is the effect on a nation's imports when its home currency appreciates?

Imports increase because foreign goods become cheaper.

If a home currency appreciates, what happens to the price of its goods for consumers abroad?

Its goods and services become more expensive for those abroad.

What is the effect on a nation's exports when its home currency appreciates?

Exports decrease because its goods become more expensive for foreigners.

What is the overall effect on a nation's net exports when its home currency appreciates?

Net exports fall (exports decrease and imports increase).

How does an increase in a country's real interest rates affect the demand for its currency?

It leads to more demand for the currency, as foreign investors seek higher returns.

An increase in a country's economic stability will likely lead to _____ in the demand for its currency.

an increase

How does an increase in a country's productivity affect the demand for its currency?

It leads to more demand for the currency.

How does an increase in a country's inflation rate affect the demand for its currency?

It leads to less demand for the currency, as its purchasing power falls.

What economic factor was cited as a primary reason for the Japanese Yen's weakness against the U.S. dollar between 2022 and 2023?

Lower Japanese interest rates relative to other countries.

A depreciation of the Japanese Yen can be graphically represented in the Yen market by a _____ shift in demand or a _____ shift in supply.

leftward (decrease); rightward (increase)

If the Japanese Yen depreciates, what is happening simultaneously in the U.S. Dollar market?

There is an increase in the demand for U.S. dollars and/or a decrease in the supply of U.S. dollars.

How do falling interest rates in the U.S. tend to affect the value of the dollar?

Falling interest rates tend to be 'dollar negative,' causing the dollar to weaken or depreciate.

If the Federal Reserve increases its interest rates, what is the expected effect on the value of the U.S. dollar?

The U.S. dollar is expected to appreciate due to increased demand from foreign investors.

If the Federal Reserve increases interest rates, causing the dollar to appreciate, what is the expected effect on U.S. net exports?

Net exports are expected to fall.

If the exchange rate for one Canadian dollar changes from $0.90 U.S. to $0.95 U.S., what has happened to the value of the Canadian dollar?

The Canadian dollar has appreciated.

If the exchange rate for one Canadian dollar changes from $0.90 U.S. to $0.95 U.S., what has happened to the value of the U.S. dollar relative to the Canadian dollar?

The U.S. dollar has depreciated.

If the Canadian dollar appreciates from $0.90 to $0.95 U.S., what will happen to U.S. net exports to Canada?

U.S. net exports will rise because U.S. goods are now cheaper for Canadians.

According to the provided chart, which currency makes up the largest component of foreign exchange reserves as of June 2024?

The U.S. dollar, with $6,675 billion.

According to the provided chart, what is the second-largest currency held in foreign exchange reserves after the U.S. dollar?

The Euro, with $2,265 billion.