U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
21
C HAPTE R
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 1
Next
Slide
EXCHANGE RATES,
THE BALANCE OF PAYMENTS,
AND TRADE DEFICITS
Copyright McGraw-Hill/Irwin, 2002
U.S. EXPORT TRANSACTION
Assume $2 = £1
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 2
Next
Slide
1. $300,000 in American computers
purchased by a British buyer for
£150,000
2. £150,000 check drawn on British
bank to pay for computers
3. £150,000 check is exchanged for
$300,000 at a New York bank
4. New York bank sends £150,000
check to London bank for future
sale to buyers who need pounds
Copyright McGraw-Hill/Irwin, 2002
U.S. IMPORT TRANSACTION
Assume $2 = £1
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 3
Next
Slide
1. £150,000 in British compact
discs purchased by a U.S. buyer
for $300,000
2. £150,000 check purchased from
U.S. bank to pay for CDs for
$300,000
3. £150,000 check is exchanged for
CD purchase from supplier
4. CD firm deposits £150,000 check
to British bank
Copyright McGraw-Hill/Irwin, 2002
U.S. IMPORT TRANSACTION
Points to remember:
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
American exports create a foreign
demand for dollars which creates a
supply of foreign currencies which
are available to American buyers.
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 4
Next
Slide
Financing an American export
reduces the supply of foreign
currencies available and increases
the domestic money supply.
Copyright McGraw-Hill/Irwin, 2002
BALANCE OF PAYMENTS
Current Account
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 5
Next
Slide
Balance on Goods & Services
Balance on Current Account
Trade Deficits & Surpluses
Capital Account
Balance on Capital Account
Official Reserves
Balance of Payment Deficits
& Surpluses
Copyright McGraw-Hill/Irwin, 2002
GLOBAL PERSPECTIVE
U.S. Export Transaction
U.S. Trade Balances in Goods,
Selected Nations, 2001
U.S. Import Transaction
Balance of Payments
-80
-70
-60
-50
-40
-30
The Market for Currency
Determinants of
Exchange Rates
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 6
0
10
Canada
Fixed Exchange Rates
International Exchange
Rate Systems
-10
Australia
Belgium
Flexible Exchange Rates
Exchange Controls and
Rationing
-20
China
Germany
Japan
Mexico
Netherlands
Next
Slide
Source: Department of Commerce
Copyright McGraw-Hill/Irwin, 2002
20
Flexible Exchange Rates
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 7
Next
Slide
Flexible or FloatingExchange-Rate
System
Fixed Exchange-Rate
System
Depreciation &
Appreciation
Copyright McGraw-Hill/Irwin, 2002
THE MARKET FOR CURRENCY
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 8
Dollar price of one pound
P
EXCHANGE
RATE: $2 = £1
S
3
2
Dollar
depreciates
Dollar
appreciates
1
D
Next
Slide
Quantity of pounds
Copyright McGraw-Hill/Irwin, 2002
Q
DETERMINANTS OF EXCHANGE RATES
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 9
Next
Slide
Changes in Tastes
Relative Income Changes
Relative Price Changes
Purchasing Power
Parity Theory
Relative Interest Rates
Speculation
Flexible exchange rates automatically
adjust to eliminate balance of
payments deficits or surpluses.
Copyright McGraw-Hill/Irwin, 2002
DISADVANTAGES OF
FLEXIBLE EXCHANGE RATES
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 10
Next
Slide
Uncertainty and
Diminished Trade
Terms of Trade
Changes
Instability
Copyright McGraw-Hill/Irwin, 2002
FIXED EXCHANGE RATES
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Use of Reserves
•Currency
Interventions
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 11
Next
Slide
Trade Policies
Copyright McGraw-Hill/Irwin, 2002
EXCHANGE CONTROLS & RATIONING
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 12
Next
Slide
•Distorted Trade
•Favoritism
•Restricted Choice
•Black Markets
Domestic Macro
Adjustments
Copyright McGraw-Hill/Irwin, 2002
INTERNATIONAL EXCHANGERATE SYSTEMS
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 13
Next
Slide
The Gold Standard: Fixed
Exchange Rates 1879 - 1934
Devaluation
The Bretton Woods System
IMF - Pegged Exchange Rates
Official Reserves
Gold Sales
IMF Borrowing
Managed Floating Exchange Rates
G-8 Nations Interventions
Copyright McGraw-Hill/Irwin, 2002
RECENT U.S. TRADE DEFICITS
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Causes of the Trade Deficits
•American Economic Growth
•Declining U.S. Savings Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 14
Next
Slide
Implications of U.S. Trade
Deficits
• Increased Current
Consumption
• Increased U.S. Indebtedness
Copyright McGraw-Hill/Irwin, 2002
balance of payments
current account
balance on goods & services
trade deficit
trade surplus
balance on current account
capital account
balance on capital account
official reserves
balance of payment deficits &
surpluses
flexible-or-floating-exchangerate system
Copyright McGraw-Hill/Irwin, 2005
fixed exchange-rate system
purchasing-power-parity
theory
currency interventions
exchange controls
gold standard
devaluation
Bretton Woods system
International Monetary
Fund (IMF)
managed floating exchange
rates
BACK
END
U.S. Export Transaction
Coming soon...
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of
Exchange Rates
Fixed Exchange Rates
Exchange Controls and
Rationing
International Exchange
Rate Systems
Recent U.S. Trade
Deficits
Key Terms
Previous
Slide
End
Show
21 - 16
THE ECONOMICS
OF DEVELOPING
COUNTRIES
CHAPTER
Next
Slide
Copyright McGraw-Hill/Irwin, 2002
22
WEB