The document discusses how exchange rates between currencies are determined by the forces of supply and demand in foreign exchange markets. There are two main reasons for exchanging currencies: to purchase goods/services from another country or relative changes in interest rates between countries. If demand for a currency increases due to a change in tastes, interest rates, or other economic factors, its value will appreciate as its price in the foreign exchange market rises. An appreciating currency makes imports less expensive and exports more expensive, decreasing exports and increasing imports.

1. New Application of Supply and Demand The Foreign Exchange Market FOREX

2. Supply and Demand and Exchange Rates If Americans want to buy foreign goods/services then they need the currency that the people in the foreign country use from day to day. If Foreigners want to buy American made goods/services, then they need the currency that people in the U.S. use from day to day. This currency exchange MUST be made somewhere along the process of trade!! Currency (money) is a commodity just like any other good/service – its value is determined by the forces of supply and demand – we can’t escape it!!

3. There are two major reasons for exchanging currencies A desire to buy the goods/services of a foreign supplier. Change in Tastes Change in Quality Change in relative price levels Change in relative wealth (GDP) A relative change in Interest Rates that investors can earn.

4. Change in Tastes effect on the Exchange Rate Suppose Foreigners want the latest computer produced by Dell Computers. To do this they will need U.S. dollars because Dell computer wants dollars, not Euros, Pesos, Yen, Yuan, etc. Foreigners will have to exchange their currency for dollars. The Supply of the Foreign Currency in the currency market will INCREASE as Foreigners give up their currency and increase their DEMAND for U.S. Dollars.

5. Market for Euros Dollar Price Per Euro $* € * Demand for Euros Supply of Euros Exchange Rate Quantity of Euros $ 1 € 1 S € 1

6. Quantity of Dollars Exchange Rate Market for Dollars Euro Price Per Dollar € * $* Demand for Dollars Supply of Dollars € 1 $ 1 D$ 1

7. What is the effect on the Exchange Rate? The Dollar price per Euro decreases ( it becomes cheaper for us to buy) and the Euro Price per Dollar increases ( it becomes more expensive for Europeans to buy dollars) The Dollar has APPRECIATED in value relative to the foreign currency. We can purchase more goods from the Europeans because the dollar buys more of their currency.

8. What effect does the exchange rate between currencies have on Exports and/or Imports? If the price of a dollar RISES relative to a foreign currency then it is said that the Dollar has APPRECIATED ( gotten stronger ) in value. The dollar can now purchase more of the foreign currency than it could before. Foreign goods are now less expensive because our dollars can now purchase more of their goods than before. On the other hand, foreign currencies have DEPRECIATED in value relative to the dollar so our currency is more expensive to buy and our goods become relatively more expensive for foreigners to buy . IMPORTS WILL INCREASE AND EXPORTS WILL DECREASE WHEN THE DOLLAR AP PRECIATES IN VALUE RELATIVE TO OTHER CURRENCIES

9. Interest Rate effect on the Exchange Rate Suppose the Interest Rate in U.S. is HIGHER relative to the Interest Rate in the Rest of the World. Foreigners will want to invest in the U.S because they can get a higher interest rate. To do this they will need U.S. dollars. Supply of the Foreign Currency in the currency market will INCREASE as Foreigners give up their currency and increase their DEMAND for U.S. Dollars.

10. Market for Euros Dollar Price Per Euro $* € * Demand for Euros Supply of Euros Exchange Rate Quantity of Euros $ 1 € 1 S € 1

11. Quantity of Dollars Exchange Rate Market for Dollars Euro Price Per Dollar € * $* Demand for Dollars Supply of Dollars € 1 $ 1 D$ 1

12. What is the effect on the Exchange Rate? The Dollar price per Euro decreases ( it becomes cheaper for us to buy) and the Euro Price per Dollar increases ( it becomes more expensive for Europeans to buy dollars) The Dollar has APPRECIATED in value relative to the foreign currency. We can purchase more goods from the Europeans because the dollar buys more of their currency.

13. What effect does the exchange rate between currencies have on Exports and/or Imports? If the price of a dollar RISES relative to a foreign currency then it is said that the Dollar has APPRECIATED ( gotten stronger ) in value. The dollar can now purchase more of the foreign currency than it could before. Foreign goods are now less expensive because our dollars can purchase more of their goods. On the other hand, foreign currencies have DEPRECIATED in value relative to the dollar so our currency is more expensive to buy and our goods become relatively more expensive for foreigners to buy . IMPORTS WILL INCREASE AND EXPORTS WILL DECREASE WHEN THE DOLLAR AP PRECIATES IN VALUE RELATIVE TO OTHER CURRENCIES

14. Change in Tastes effect on the Exchange Rate Suppose Americans develop a taste for a vintage wine produced and sold in France. To do this they will need Euros because the French wine producers want Euros, not Dollars. Americans will have to exchange their currency for Euros. The Supply of the Dollars in the currency market will INCREASE as Americans give up their currency and increase their DEMAND for Euros.

15. Quantity of Dollars Exchange Rate € 1 $ 1 S$ 1 Market for Dollars Euro Price Per Dollar € * $* Demand for Dollars Supply of Dollars

16. Market for Euros Dollar Price Per Euro $* € * Demand for Euros Supply of Euros Exchange Rate Quantity of Euros $ 1 € 1 D € 1

17. What is the effect on the Exchange Rate? The Dollar price per Euro increases ( it becomes more expensive for us to buy) and the Euro Price per Dollar decreases ( it becomes less expensive for Europeans to buy dollars) The Dollar has DEPRECIATED in value relative to the foreign currency. We can purchase fewer goods from the Europeans because the dollar buys less of their currency.

18. What effect does the exchange rate between currencies have on Exports and/or Imports? If the price of a dollar is LOWER relative to a foreign currency then it is said that the Dollar has DEPRECIATED ( gotten weaker ) in value. The dollar can now purchase less of the foreign currency than it could before. Foreign goods are now more expensive because our dollars can purchase less of their goods. On the other hand, foreign currencies have APPRECIATED in value relative to the dollar so our currency is less expensive to buy and our goods become relatively cheaper for foreigners to buy. IMPORTS WILL DECREASE AND EXPORTS WILL INCREASE WHEN THE DOLLAR DE PRECIATES IN VALUE RELATIVE TO OTHER CURRENCIES

19. Interest Rate effect on the Exchange Rate Suppose the Interest Rate in U.S. is LOWER relative to the Interest Rate in the Rest of the World. Americans will want to invest in the country paying a higher interest rate. To do this they will need the foreign currency. Supply of U.S. Dollars in the currency market will INCREASE as Americans give up dollars and increase their DEMAND for the foreign currency.

20. Quantity of Dollars Exchange Rate € 1 $ 1 S$ 1 Market for Dollars Euro Price Per Dollar € * $* Demand for Dollars Supply of Dollars

21. Market for Euros Dollar Price Per Euro $* € * Demand for Euros Supply of Euros Exchange Rate Quantity of Euros $ 1 € 1 D € 1

22. What is the effect on the Exchange Rate? The Dollar price per Euro increases ( it becomes more expensive for us to buy) and the Euro Price per Dollar decreases ( it becomes less expensive for Europeans to buy dollars) The Dollar has DEPRECIATED in value relative to the foreign currency. We can purchase fewer goods from the Europeans because the dollar buys less of their currency.

23. What effect does the exchange rate between currencies have on Exports and/or Imports? If the price of a dollar is LOWER relative to a foreign currency then it is said that the Dollar has DEPRECIATED ( gotten weaker ) in value. The dollar can now purchase less of the foreign currency than it could before. Foreign goods are now more expensive because our dollars can purchase less of their goods. On the other hand, foreign currencies have APPRECIATED in value relative to the dollar so our currency is less expensive to buy and our goods become relatively cheaper for foreigners to buy. IMPORTS WILL DECREASE AND EXPORTS WILL INCREASE WHEN THE DOLLAR DE PRECIATES IN VALUE RELATIVE TO OTHER CURRENCIES

25. Price of U.S. goods rise relative to German goods. Quantity of Dollars Quantity of Euros Rationale: Americans will demand less expensive Germans goods thereby increasing the demand for Euros and increasing the supply of dollars to the FOREX. The U.S. dollars depreciates and the Euro appreciates Demand Supply P* Q* Demand Supply P* Q*

26. Interest rates in the U.S rise faster than interest rates in Canada Quantity of Dollars Quantity of Canadian Dollars Rationale: Demand Supply P* Q* Demand Supply P* Q*

28. French tourist flock to Mexican beaches Quantity of Euros Quantity of Pesos Rationale: Demand Supply P* Q* Demand Supply P* Q*

29. Japanese video games become popular with American children Quantity of Dollars Quantity of Yen Rationale: Demand Supply P* Q* Demand Supply P* Q*

32. Quantity of Dollars Quantity of Yen What happens to the U.S. Dollar: What happens to the Japanese Yen: Japan’s Real GDP increases Demand Supply P* Q* Demand Supply P* Q*

33. Quantity of Dollars Quantity of Yen Japan’s Real GDP increases U.S. Exports increase or decrease U.S. Imports increase or decrease Demand Supply P* Q* Demand Supply P* Q*

35. Interest rates in the U.S increase Quantity of Dollars Quantity of Euros What happens to the U.S. Dollar: What happens to the Euro: Demand Supply P* Q* Demand Supply P* Q*

36. Interest rates in Europe increase Quantity of Dollars Quantity of Euros U.S. Exports increase or decrease: U.S. Imports increase or decrease: Demand Supply P* Q* Demand Supply P* Q*

38. The price level in Canada increases Quantity of Dollars Quantity of Canadian Dollars What happens to the U.S. dollar: What happens to the Canadian Dollar: Demand Supply P* Q* Demand Supply P* Q*

39. FOREX – Example Assumption – Mercedes Benz makes cars in both the U.S. and Germany. Lets say that yesterday the exchange rate between the $ and the € is $1.00 equals € 1.00. To buy a Mercedes costs $50,000 or € 50,000. You are indifferent to who sells you the car. In the paper today you find out the U.S. interest rate relative to the interest rate in Europe is LOWER. You check the FOREX and you find out that the exchange rate is now EURO/USD is $1.35. Use the following worksheet to graph what happened in the FOREX market and answer the questions that follow. Assumption – Mercedes Benz makes cars in both the U.S. and Germany. Lets say that yesterday the exchange rate between the $ and the € is $1.00 equals € 1.00. To buy a Mercedes costs $50,000 or € 50,000. You are indifferent to who sells you the car. In the paper today you find out the U.S. interest rate relative to the interest rate in Europe is HIGHER. You check the FOREX and you find out that the exchange rate is now EURO/USD is $.75. Use the following worksheet to graph what happened in the FOREX market and answer the questions that follow.

40. FOREX – Example Assumption – Mercedes Benz makes cars in both the U.S. and Germany. Lets say that yesterday the exchange rate between the $ and the € is $1.00 equals € 1.00. To buy a Mercedes costs $50,000 or € 50,000. You are indifferent to who sells you the car. In the paper today you find out the U.S. interest rate relative to the interest rate in Europe is LOWER . You check the FOREX and you find out that the exchange rate is now USD/EURO is $1.35 (dollar price (cost) per euro is $1.35). Use the following worksheet to graph what happened in the FOREX market and answer the questions that follow.

41. Demand/Supply for $$ Increase or Decrease ___Price of $$ -- Increase or Decrease $$ --Depreciate or Appreciate $$ -- Weaker or Stronger U.S. Imports -----Increase or Decrease U.S. Exports------Increase or Decrease Demand/Supply for _____ Increase or Decrease $$ Price of ______ Increase or Decrease ____Depreciate or Appreciate ____Weaker or Stronger ___I mports -----Increase or Decrease ____Exports------Increase or Decrease Demand$ Supply$ __price Of $$* Q$* Demand____ Supply__ $$price of__* Q__* Quantity of Dollars Quantity of ____________ U.S. NET EXPORTS -----INCREASE OR DECREASE € 1.00 $1.00 Market for $ Market for €

42. USD $50,000 = EURO €50,000 Exchange Rate was $1.00 = €1.00 Exchange Rate is now or How much does that Mercedes cost now in each currency for an American to buy and a German to buy? If you are a German and you convert your Euros to Dollars that Mercedes will cost you: If you are an American and you convert your Dollars to Euros that Mercedes will cost you: Where do Americans want to buy their Mercedes? Where do Germans want to buy their Mercedes? What happens to Exports from U.S What happens to Imports to U.S.

43. USD $50,000 = EURO €50,000 Exchange Rate was $1.00 = €1.00 Exchange Rate is now $1.35 = € 1.00 (dollar price (cost) per euro is $1.35) or €.74 = $1.00 (euro price (cost) per dollar is €.74) How much does that Mercedes cost now in each currency for an American to buy and a German to buy? If you are a German and you convert your Euros to Dollars that Mercedes will cost you: $50,000 = No. of Euros needed x $1.35 (for each Euro exchanged he can get $1.35) $50,000 / $1.35 = No. of Euros needed € 37,037 If you are an American and you convert your Dollars to Euros that Mercedes will cost you: € 50,000 = No. of Dollars needed x €.74 (for each Dollar exchanged he can get €.74) € 50,000 / €.74= No. of Dollars needed $67,567 Where do Americans want to buy their Mercedes? In U.S. Where do Germans want to buy their Mercedes? I n U.S What happens to Exports from U.S What happens to Imports to U.S.

44. FOREX – Example Assumption – Mercedes Benz makes cars in both the U.S. and Germany. Lets say that yesterday the exchange rate between the $ and the € is $1.00 equals € 1.00. To buy a Mercedes costs $50,000 or € 50,000. You are indifferent to who sells you the car. In the paper today you find out the U.S. interest rate relative to the interest rate in Europe is HIGHER . You check the FOREX and you find out that the exchange rate is now USD/EURO is $.75 (dollar price (cost) per euro is $.75). Use the following worksheet to graph what happened in the FOREX market and answer the questions that follow.

45. Demand/Supply for $$ Increase or Decrease ___Price of $$ -- Increase or Decrease $$ --Depreciate or Appreciate $$ -- Weaker or Stronger U.S. Imports -----Increase or Decrease U.S. Exports------Increase or Decrease Demand/Supply for _____ Increase or Decrease $$ Price of ______ Increase or Decrease ____Depreciate or Appreciate ____Weaker or Stronger ___I mports -----Increase or Decrease ____Exports------Increase or Decrease Demand$ Supply$ __price Of $$ Q$* Demand____ Supply__ $$price of__ Q__* Quantity of Dollars Quantity of ____________ U.S. NET EXPORTS -----INCREASE OR DECREASE ____ ____ Market for $ Market for ____ Circle correct answers Circle correct answers

46. USD $50,000 = EURO €50,000 Exchange Rate was $1.00 = €1.00 Exchange Rate is now or How much does that Mercedes cost now in each currency for an American to buy and a German to buy? If you are a German and you convert your Euros to Dollars that Mercedes will cost you: If you are an American and you convert your Dollars to Euros that Mercedes will cost you: Where do Americans want to buy their Mercedes? Where do Germans want to buy their Mercedes? What happens to Exports from U.S What happens to Imports to U.S.

47. USD $50,000 = EURO €50,000 Exchange Rate was $1.00 = €1.00 Exchange Rate is now $.75 = € 1.00 (dollar price (cost) per euro is $.75) or €.1.33 = $1.00 (euro price (cost) per dollar is €.1.33) How much does that Mercedes cost now in each currency for an American to buy and a German to buy? If you are a German and you convert your Euros to Dollars that Mercedes will cost you: $50,000 = No. of Euros needed x $.75 (for each Euro exchanged he can get $.75 $50,000 / $.75 = No. of Euros needed € 66,667 If you are an American and you convert your Dollars to Euros that Mercedes will cost you: € 50,000 = No. of Dollars needed x €1.33 (for each Dollar exchanged he can get €1.33) € 50,000 / €1.33= No. of Dollars needed $37,594 Where do Americans want to buy their Mercedes? In Germany. Where do Germans want to buy their Mercedes? I n Germany What happens to Exports from U.S? What happens to Imports to U.S?

48. Demand for $$ -- Increase or Decrease Price of $$ -- Increase or Decrease $$ --Depreciate or Appreciate $$ -- Weaker or Stronger Imports -----Increase or Decrease Exports------Increase or Decrease Demand for _____ Increase or Decrease Price of ________ Increase or Decrease ____Depreciate or Appreciate ____Weaker or Stronger Imports -----Increase or Decrease Exports------Increase or Decrease Quantity of_______ Quantity of ____________ U.S . NET EXPORTS -----INCREASE OR DECREASE

49. Demand for $$ -- Increase or Decrease Price of $$ -- Increase or Decrease $$ --Depreciate or Appreciate $$ -- Weaker or Stronger Imports -----Increase or Decrease Exports------Increase or Decrease Demand for _____ Increase or Decrease Price of ________ Increase or Decrease ____Depreciate or Appreciate ____Weaker or Stronger Imports -----Increase or Decrease Exports------Increase or Decrease Demand$ Supply$ P$* Q$* Demand____ Supply__ P__* Q__* Quantity of Dollars Quantity of ____________ U.S . NET EXPORTS -----INCREASE OR DECREASE

51. Demand$ Supply$ MXN price of $$ Q$* Demand Peso_ Supply Peso _ $$price of MXN_ Q P* Quantity of Dollars Quantity of Pesos 10 P $.10 Market for $ Market for Pesos_ (ii) In the market for dollars the demand for dollars will increase because the Mexican govt. wants to buy American made computers and they will need dollars which they don’t have. Because of the increase in demand, relative to the supply for the dollar, the dollar has now appreciated (stronger) in value relative to the peso. For Mexicans it will now take more pesos for them to buy a dollar. In the market for pesos the supply of pesos will increase because the Mexican govt. wants to buy American made computers and they need to give up pesos in order to get dollars. Because of the increase in supply, relative to the demand for the peso, the peso has now depreciated (weaker) in value relative to the dollar. For Americans it will now take fewer dollars (cents) for us to buy a peso. (C) The cost of a trip to Mexico will be less expensive when I exchange my dollars for pesos. Because the dollar has appreciated in value, I will now receive more pesos for each dollar that I exchange. Therefore I will need fewer dollars to exchange for pesos than I would have needed before he Mexican government took their action. D$1 Speso1 $.08 12.5 P A B A B Note: The numbers on the vertical axis were derived this way: I was given equilibrium price in the example. After I shifted my curves I can see that in the market for pesos the new price is going to be lower than $.10. I chose $.08 as the new price. In the market for dollars I know the new price is going to be above 10 peso. I can find what that number is by taking the reciprocal of $.08 which equals 12.5. (A) Qp1 Q$1

52. Demand$ Supply$ ___ price of $$ Demand ___ _ Supply __ _ $$price of ___ Quantity of Dollars Quantity of ______ Market for $ Market for _____ (ii) In the market for dollars the ______ for dollars will _______ because ________________________________________and _______________Because of the ________ in __________, relative to the __________ for the dollar, the dollar has now ___________________ in value relative to the _______. For _______________ it will now take ____ _____ for them to buy a dollar. In the market for ______ the ________ for ________ will __________ because ______________________. Because of the _______ in ________, relative to the ________ for the _____ the ______ has now __________________ in value relative to the dollar. For Americans it will now take ______ ________ for us to buy a _______. (C) The cost of a trip to __________ will be _______expensive when I exchange my dollars for ______. Because the dollar has _________ in value, I will now receive _______ ________ for each dollar that I exchange. Therefore I will need _______ dollars to exchange for ______ than I would have needed before the scenario stated in the problem. D$1 (A)

54. Demand$ Supply$ ___ price of $$ Demand ___ _ Supply __ _ $$price of ___ Quantity of Dollars Quantity of ______ Market for $ Market for _____ (ii) In the market for dollars the ______ for dollars will _______ because ________________________________________and _______________Because of the ________ in __________, relative to the __________ for the dollar, the dollar has now ___________________ in value relative to the _______. For _______________ it will now take ____ _____ for them to buy a dollar. In the market for ______ the ________ for ________ will __________ because ______________________. Because of the _______ in ________, relative to the ________ for the _____ the ______ has now __________________ in value relative to the dollar. For Americans it will now take ______ ________ for us to buy a _______. (C) The cost of a trip to __________ will be _______expensive when I exchange my dollars for ______. Because the dollar has _________ in value, I will now receive _______ ________ for each dollar that I exchange. Therefore I will need _______ dollars to exchange for ______ than I would have needed before the scenario stated in the problem. D$1 (A)

55. Demand$ Supply$ ___ price of $$ Demand ___ _ Supply __ _ $$price of ___ Quantity of Dollars Quantity of ______ Market for $ Market for _____ (ii) In the market for dollars the ______ for dollars will _______ because ________________________________________and _______________Because of the ________ in __________, relative to the __________ for the dollar, the dollar has now ___________________ in value relative to the _______. For _______________ it will now take ____ _____ for them to buy a dollar. In the market for ______ the ________ for ________ will __________ because ______________________. Because of the _______ in ________, relative to the ________ for the _____ the ______ has now __________________ in value relative to the dollar. For Americans it will now take ______ ________ for us to buy a _______. (C) The cost of a trip to __________ will be _______expensive when I exchange my dollars for ______. Because the dollar has _________ in value, I will now receive _______ ________ for each dollar that I exchange. Therefore I will need _______ dollars to exchange for ______ than I would have needed before the scenario stated in the problem. D$1 (A)

57. Demand$ Supply$ ___ price of $$ Demand ___ _ Supply __ _ $$price of ___ Quantity of Dollars Quantity of ______ Market for $ Market for _____ (ii) In the market for dollars the ______ for dollars will _______ because ________________________________________and _______________Because of the ________ in __________, relative to the __________ for the dollar, the dollar has now ___________________ in value relative to the _______. For _______________ it will now take ____ _____ for them to buy a dollar. In the market for ______ the ________ for ________ will __________ because ______________________. Because of the _______ in ________, relative to the ________ for the _____ the ______ has now __________________ in value relative to the dollar. For Americans it will now take ______ ________ for us to buy a _______. (C) The cost of a trip to __________ will be _______expensive when I exchange my dollars for ______. Because the dollar has _________ in value, I will now receive _______ ________ for each dollar that I exchange. Therefore I will need _______ dollars to exchange for ______ than I would have needed before the scenario stated in the problem. D$1 (A)

58. Demand$ Supply$ ___ price of $$ Demand ___ _ Supply __ _ $$price of ___ Quantity of Dollars Quantity of ______ Market for $ Market for _____ (ii) In the market for dollars the ______ for dollars will _______ because ________________________________________and _______________Because of the ________ in __________, relative to the __________ for the dollar, the dollar has now ___________________ in value relative to the _______. For _______________ it will now take ____ _____ for them to buy a dollar. In the market for ______ the ________ for ________ will __________ because ______________________. Because of the _______ in ________, relative to the ________ for the _____ the ______ has now __________________ in value relative to the dollar. For Americans it will now take ______ ________ for us to buy a _______. (C) The cost of a trip to __________ will be _______expensive when I exchange my dollars for ______. Because the dollar has _________ in value, I will now receive _______ ________ for each dollar that I exchange. Therefore I will need _______ dollars to exchange for ______ than I would have needed before the scenario stated in the problem. D$1 (A)

59. Market for Euros Dollar Price Per Euro $* € * Demand for Euros Supply of Euros Exchange Rate Quantity of Euros

60. Quantity of Dollars Exchange Rate Market for Dollars Euro Price Per Dollar € * $* Demand for Dollars Supply of Dollars

61. Quantity of Dollars Exchange Rate Market for Dollars Euro Price Per Dollar € * $* Demand for Dollars Supply of Dollars

62. Market for Euros Dollar Price Per Euro $* € * Demand for Euros Supply of Euros Exchange Rate Quantity of Euros

63. Demand/Supply for $$ - Increase or Decrease ___Price of $$ -- Increase or Decrease $$ --Depreciate or Appreciate $$ -- Weaker or Stronger Imports -----Increase or Decrease Exports------Increase or Decrease Demand/Supply for _____ Increase or Decrease $$ Price of ______ Increase or Decrease ____Depreciate or Appreciate ____Weaker or Stronger Imports -----Increase or Decrease Exports------Increase or Decrease Demand$ Supply$ __price Of $* Q$* Demand____ Supply__ $ price of__* Q__* Quantity of Dollars Quantity of ____________ U.S. NET EXPORTS -----INCREASE OR DECREASE

64. Demand/Supply for $$ - Increase or Decrease ___Price of $$ -- Increase or Decrease $$ --Depreciate or Appreciate $$ -- Weaker or Stronger Imports -----Increase or Decrease Exports------Increase or Decrease Demand/Supply for _____ Increase or Decrease $$ Price of ______ Increase or Decrease ____Depreciate or Appreciate ____Weaker or Stronger Imports -----Increase or Decrease Exports------Increase or Decrease U.S. NET EXPORTS -----INCREASE OR DECREASE

65. The Interest Rates in the U.S. are higher relative to the Interest Rates in Europe . On the above graphs show me how this will effect supply and demand in the Market for Dollars and the Market for Euros. Don’t forget to properly label!! In the space below, tell me “the story” of what is going on. Be sure to include what happens to the value of both currencies and the reason we had a movement in the exchange rate. Tell me what the potential effect on Imports and Exports will be after the change in the exchange rate. Use the back of this page if you need more space. Be as complete as possible. Use all the terms we have studied (i.e. stronger/weaker, appreciate/depreciate, increase/decrease. Etc) Quantity of_______ Quantity of ____________

66. The Interest Rates in the U.S. are lower relative to the Interest Rates in Europe . On the above graphs show me how this will effect supply and demand in the Market for Dollars and the Market for Euros. Don’t forget to properly label!! In the space below, tell me “the story” of what is going on. Be sure to include what happens to the value of both currencies and the reason we had a movement in the exchange rate. Tell me what the potential effect on Imports and Exports will be after the change in the exchange rate. Use the back of this page if you need more space. Be as complete as possible. Use all the terms we have studied (i.e. stronger/weaker, appreciate/depreciate, increase/decrease. Etc) Quantity of_______ Quantity of ____________

67. French parents hear about a great home-schooling program in Argyle, Tx and they want to come and see what it is all about. How, in some small way might this effect the FOREX market. On the above graphs show me how this will effect supply and demand in the Market for Dollars and the Market for Euros. Don’t forget to properly label!! In the space below, tell me “the story” of what is going on. Be sure to include what happens to the value of both currencies and the reason we had a movement in the exchange rate. Tell me what the potential effect on Imports and Exports will be after the change in the exchange rate. Use the back of this page if you need more space. Be as complete as possible. Use all the terms we have studied (i.e. stronger/weaker, appreciate/depreciate, increase/decrease. Etc) Quantity of_______ Quantity of ____________

68. The Japanese discover a method to cure male patterned baldness in Middle-aged men. The cure comes from an herb grown only in Japan and it is only available in Japan. Mr. Hayward and several million other American men are VERY interested in this cure. How, in some small way, might this effect the FOREX market. On the above graphs show me how this will effect supply and demand in the Market for Dollars and the Market for YEN. Don’t forget to properly label!! In the space below, tell me “the story” of what is going on. Be sure to include what happens to the value of both currencies and the reason we had a movement in the exchange rate. Tell me what the potential effect on Imports and Exports will be after the change in the exchange rate. Use the back of this page if you need more space. Be as complete as possible. Use all the terms we have studied (i.e. stronger/weaker, appreciate/depreciate, increase/decrease. Etc) Quantity of_______ Quantity of ____________