FUNDAMENTALS OF BUSINESS ECONOMICS

IV.  Foreign Exchange Market

A.  Basics of Foreign Exchange Markets

• Exchange rate - price of one currency in terms of another
  

Spot rate - price paid for currency "on the spot" (immediately)

• Pacific Exchange Rate Service

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1.  Reciprocal nature

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2.  Appreciation and depreciation

• Currency appreciation => currency increases in value

• Currency depreciation => currency decreases in value

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=> appreciation of one currency means depreciation of the other

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3.   Units

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4.  Impact of appreciation and depreciation

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• Currency appreciation => imports cheaper, exports more expensive

• Currency depreciation => imports more expensive, exports cheaper