TAILIEUCHUNG - The economics of Money, Banking and Financial Markets Part 9

Ch a p ter 19 The Foreign Exchange Market. In the mid-1980s, American businesses became less competitive with their foreign counterparts; subsequently, in the 1990s and 2000s, their competitiveness increased. | Part V International Finance and Monetary Policy Chapter IQ The Foreign Exchange Market PREVIEW In the mid-1980s American businesses became less competitive with their foreign counterparts subsequently in the 1990s and 2000s their competitiveness increased. Did this swing in competitiveness occur primarily because American management fell down on thejob in the 1980s and then got its act together afterwards Not really. American business became less competitive in the 1980s because American dollars become worth more in terms of foreign currencies making American goods more expensive relative to foreign goods. By the 1990s and 2000s the value of the . dollar had fallen appreciably from its highs in the mid-1980s making American goods cheaper and American businesses more competitive. The price of one currency in terms of another is called the exchange rate. It affects the economy and our daily lives because when the . dollar becomes more valuable relative to foreign currencies foreign goods become cheaper for Americans and American goods become more expensive for foreigners. When the . dollar falls in value foreign goods become more expensive for Americans and American goods become cheaper for foreigners. We begin our study of international finance by examining the foreign exchange market the financial market where exchange rates are determined. As you can see in Figure 1 exchange rates are highly volatile. What factors explain the rise and fall of exchange rates Why are exchange rates so volatile from day to day To answer these questions we develop a modern view of exchange rate determination that explains recent behavior in the foreign exchange market. Foreign Exchange Market Pihome addpub usfxm Get detailed information about the foreign exchange market in the United States. Most countries of the world have their own currencies The United States has its dollar the European Monetary Union the euro Brazil its real and India its rupee. Trade .

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