Nov 08 2007
IB – Theories of Exchange Rates
Published by Jason Welker at 10:12 am under Currency,Exchange Rates,Foreign exchange markets,IB Economics
The links below will take you to an overview of several theories relating to exchange rates. These include:
- Foreign Exchange Markets – James and Wan Jin
- Fixed exchange rates - Marco and Danny
- Floating exchange rates - Enno and Dennis
- The Marhsall-Lerner Condition – Manon, Kaj, Daniel
- The economic effects of a devaluation – Carlos and Lucas
Your assignment in today’s class is to work with your partner to read and prepare a short presentation of your assigned topic. You will come to the front and explain your topic halfway through class.
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About the author: Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course.
Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this authorRelated posts:
- More on exchange rates: Winners and losers of a strong British pound
- How do changing interest rates affect exchange rates? The example of the RMB
- Exchange rates, currency manipulations, and the balance of trade
- Another question from the Help Desk: Relative price levels as a determinant of exchange rates
- Exchange rates and trade: a delicate balancing act, currently out of balance!
Dim Sum at Fook Lam Moont.com/forums/threads/24-hours-in-hong-kong.21154/page-2
Beggars Chicken and Peking Duck at Peking Garden (in Pacific Place)
Wonton Noodles at Tsim Chai Kee 98 Wellington St
Snacks at any Tsui Wah
Take the tram through Wan Chai
Seafood on Lamma Island
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Economic Effects of a Devaluation:
The economic effects of a devaluation will affect all consumers and producers involved with international trade. There will be an decrease in consumption of imported goods, and this will negatively affect foreign exporters because there will be a decrease in consumption of their goods therefore less revenue. The consumption of imported goods will decrease because they will seem relatively more expensive.
There will be more exports from domestic producers to foreign countries because the goods seem relatively cheaper to foreign countries. This increase in foreign consumption will increase domestic GDP. Also because of the increase in exports to foreign countries, there will be an increase in employment in the export industries in order to meet the new demand. The lower exchange rate will also increase the employment in domestic industries because domestic consumers will have more incentive to buy domestic goods because foreign imports are relatively more expensive.
Inflation will rise because the price level of goods will rise. The price level rises because domestic firms need to import relatively more expensive resources. The increase in resource costs will require firms to raise their price in order to continue making profit.
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