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Name ___ Sec.__Quiz 12
1.What are the two deadweight losses with
you impose a tariff?
Suggestion
Political Polarity
Dr.Troy Smith and Dr. Rand Blimes
Wed. at 5pm HGB 275
Cookies and fruit platters
Finals
8:00am:Tue. Dec 10 8:00am - 10:50am
9:30am:Thur. Dec 12 11:00am - 1:50pm
12:00pm:Tue. Dec 10 11:00am - 1:50pm
Chapter 20
International
Finance
Chapter 20
Exchange Rates
Arbitrage
Law of One Price
100+ Currencies
https://www.tradingview.com/markets/currencies/cross-rates-overview-prices/
Arbitrage
Buy Low Sell High
Time
Geography
$1.00
=
6.25Yuan
1.00Yuan
=
$0.16
$5.00 Yuan 20
$5.00
x
6.25
=
Yuan 31.25
Yuan 20
÷
6.25
=
$3.20
$5.00 $3.20
one
unit
of
this
will buy ___ units of that
https://www.tradingview.com/markets/currencies/cross-rates-overview-prices/
Exchange Rates
Two Trades
Why buy Dollars?
Buy American Stuff
Invest in America
Hold and Hope
Why buyYuan?
Buy Chinese Stuff
Invest in China
Hold and Hope
Demand
Dollars
Yuan
Per Dollar
Supply
Higher U.S.
Interest
Rate
6.44
6.50
Depreciating
Cost more to
buy a dollar
Losing
Value
Demand
Dollars
Yuan
Per Dollar
Supply
Lower U.S.
Interest
Rate
6.44
6.25
Appreciating
Cost Less to
buy a Dollar
Gaining
Value
Big Mac Index
Big Mac Index
Country Currency Price Rate Dollars
Phillipines Peso 140 0.019 $2.66
Vietnam Dong 65,000 0.000043 $2.80
China Yuan 20.50 0.15 $3.08
Saudi Arabia Riyal 12 0.265 $3.18
Switzerland Franc 6.5 1.0 $6.50
Arbitrage
Buy low and sell high
Buy here and sell there
Buy today and sell tomorrow
Arbitrage
Are the price differences
different than the exchange
rate?
If so, buy low and sell high
The Law of One
Price
Arbitrage closes price gaps
Bid up the low price - Demand
Bid down the high price -
Supply
1.00 Dollar to 6.92 Yuan
USD to CNY
$ to ¥
$ 5.00
x
6.92
=
¥ 34.60
¥ 30.00
÷
6.92
=
$ 4.34
$ 5.00
$ 4.34 increase demand
increase supply
$ 4.67 one price
Price Arbitrage
Arbitragers
Arbitraging
1. Pick a product and review the prices in both countries
2. Are the prices different than the exchange rates?
3. Buy currency in the low priced country
4. Buy the product in the low priced country
5. Move to the high priced country
6. Sell in the high priced country
1.00 Dollar to 51.91 Peso
USD to PHP
$ to ₱
$ 50.00
x
51.91
=
₱ 2,595
₱ 1,973
÷
51.91
=
$ 38.00
$38
$40 $40
Supply
More Supply
Demand
More
Demand
Price
Quantity
Price
Quantity
Demand
Supply
$50
₱ 1,973
Cost?
Arbitraging
1. Traded $38 for ₱ 1,973
2. Bought shoes for ₱ 1,973
3. Shipped to U.S.
4. Sold in U.S. for $50
5. Traded $38 for $50
6. Made $12 on $38
7. Made 31 percent profit
8. Repeat
1. Dollar to Won (KRW) rate is 1 to 1,176
2. Cell Phone in U.S. is $600
3. Same Cell Phone in South Korea is 600,000
4. Cost to ship is $5
5. What should you do and how much will you
make? Dollars and percent?
Economics
The study of how human
beings create value for one
another

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Macro 20