Foreign Exchange Market

Exchange Rate

A fall in the value of one currency vs. another is currency ______

A rise in value of one currency vs. another currency is currency _________

When people who are holding US$ want to exchange it for CA$, they

The quantity of CA$ that traders plan to buy in the foreign exchange market depends on

the higher the exchange rate (the price of CA$), the _______ is the quantity of CA$ demanded in the foreign exchange market

Why is the demand curve for Canadian dollars downward sloping?

Exports Effect

Expected Profit Effect

As the price does up, the quantity demanded goes _____

The supply curve for CA$ is the relationship between __________ and ___________

Why is the supply curve for Canadian dollars sloping upward?

Imports Effect

Expected Profit Effect

The higher the price, the ______ the quantity supplied

If the exchange rate is too high, a ______ of Canadian dollars drives it ______

If the exchange rate is too low, a _______ of Canadian dollars drives it ______

Changes in things other than the exchange rate will shift the demand curve for CA$

World Demand for Canadian Exports

Canadian Interest Rate vs Foreign Interest Rates

Canadian Interest Rate Differential

Expected Future Exchange Rate

Changes in anything other than the exchange rate will shift the supply curve

Canadian Demand for Imports

Canadian Interest Rate Differential

Expected Future Exchange Rate

Arbitrage

Interest Rate Parity

Purchasing Power Parity (PPP)

Nominal Exchange Rate

Real Exchange Rate

Real Exchange Rate Equation

Real Exchange Rate in the Short-Run Equation

Real Exchange Rates in the Long-Run Equation

3 possible exchange rate policies are

Flexible Exchange Rate

Fixed Exchange Rate

If demand increases, the Bank of Canada _____ CA$. This _____ supply and moves equilibrium back

Crawling Peg

Balance of Payments Account

3 Balance of Payments Accounts

Current Account

Current Account Balance Equation

Inflows

Outflows

Capital Account

Official settlements account

The sum of the balances of the three accounts always _____

A country that is borrowing more from the rest of the world than it is lending to it is called a _______

A country that is lending more to the rest of the world than it is borrowing from it is called a _______

Debtor Nation

Creditor Nation

Investment and Savings Equations

Current Account Balance Equation

Exchange Rate and the Balance of Payments in the Short-Run

Exchange Rate and the Balance of Payments in the Long-Run