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Chapter 10 - Foreign exchange. In this chapter we will discuss: How foreign exchange rates are determined; what accounts for their fluctuations over days, months, years, and decade, and the connection of foreign exchange rates and exchange markets. | Chapter Ten 10- Introduction Global business includes goods, services, stocks, bonds, etc. around the globe. To understand the nature of these transactions, we must become familiar with exchange rates. All cross-border transactions have a buyer and a seller that want to use their own currency. The exchange rate, at it most basic level, is the tool we use to measure the price of one currency in terms of another. 10- In this chapter we will discuss: How foreign exchange rates are determined, What accounts for their fluctuations over days, months, years, and decade, and The connection of foreign exchange rates and exchange markets. Introduction 10- Foreign Exchange Basics When you travel to other countries, the providers of the goods and services you buy usually want to be paid in their own currency. In Europe that is easier because most European countries, at least members of the European Monetary Union, all use euros. The price of one euro in dollars is called . | Chapter Ten 10- Introduction Global business includes goods, services, stocks, bonds, etc. around the globe. To understand the nature of these transactions, we must become familiar with exchange rates. All cross-border transactions have a buyer and a seller that want to use their own currency. The exchange rate, at it most basic level, is the tool we use to measure the price of one currency in terms of another. 10- In this chapter we will discuss: How foreign exchange rates are determined, What accounts for their fluctuations over days, months, years, and decade, and The connection of foreign exchange rates and exchange markets. Introduction 10- Foreign Exchange Basics When you travel to other countries, the providers of the goods and services you buy usually want to be paid in their own currency. In Europe that is easier because most European countries, at least members of the European Monetary Union, all use euros. The price of one euro in dollars is called the dollar-euro exchange rate. 10- The Nominal Exchange Rate Exchanging dollars for euros is like any other economic transaction: you are using your money to buy something, but in another country. The price you pay for this currency is called the nominal exchange rate, or simply the exchange rate. The nominal exchange rate is the rate at which one can exchange the currency of one country for the currency of another country. 10- The Nominal Exchange Rate Exchange rates change every day. Figure 10.3 shows the dollar-euro exchange rate from January 1999 to January 2010. The figure plots the number of dollars per euro (€), which is conventional way to quote the dollar-euro exchange rate. 10- The Nominal Exchange Rate 10- The Nominal Exchange Rate A decline in the value of one currency relative to another is called a depreciation of the currency that is falling in value. The rise in the value of one currency relative to another is called an appreciation of the
