INTB 336 Lecture Notes - Lecture 2: Bank Of South Australia, Economic Equilibrium, Foreign Exchange Spot
26 May 2017
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Chapter 3: exchange rates and the foreign exchange market an asset. Because of their strong influence on the current account and other macroeconomic variables, exchange rates are among the most important prices in an open economy. If the dollar appreciates . 50/pound to . 25/pound, the pound depreciates because you can use less usd to buy the same amount of pounds. If the dollar depreciates . 50/pound to . 75/pound, the pound appreciates because you need more usd to buy the same amount of pounds. If you are going from usd to pounds, you divide usd by $/pound. If you are going from pounds to usd, you multiply pounds by $/pound. Ex: an american trying to decide how much to spend on american jeans and how much to spend on british sweaters, must translate their prices into a common currency to compute the price of sweaters in terms of jeans.
