Exchange Rates

This video lecture walks students through a few scenarios that could lead to a change in a country’s exchange rate and introduces the concept of a managed exchange rate system. Japan and the US are used as an example. We’ll see what happens to the value of the Yen when the Bank of Japan engages in expansionary monetary policy, as well as what happens to the dollar when foreign investors speculate on its future appreciation. We’ll also see how the US government may go about intervening in the market for its own currency to assure a stable exchange rate against the Yen, and show the effect of exchange rate management on the foreign exchange market for dollars in Japan. www.econclassroom.com

Exchange rates are the “prices” of one country’s currency expressed in terms of another country’s currency.Exchange rates are determined through the market forces of supply and demand, just like prices for any good, service, or resource. This lesson will explore the different determinants of exchange rates, focusing on the markets for Swiss francs in Europe and the market for Euros in Switzerland. Examples of the various factors affecting exchange rates will be given, including: 1 – consumers’ demand for foreign goods, 2 – relative interest rates between countries, 3 – relative inflation rates between countries, 4 – speculation among investors of future exchange rates, and 5 – relative income levels between countries