The Foreign Exchange Market

INTRODUCTION

Today we will learn about the foreign exchange market (exchange rates) and its relationship to the balance of payments and the macroeconomy. We will start class today with you working cooperatively with a partner to find a solution to the "Problem of the Day" and then there will be a lecture on our next topic. This page contains all the information you need for today's class: homework, the problem of the day, helpful resources (videos, podcasts, etc.) and an explanation of the activities we will do in class. Use the table of contents on the right to help you navigate.

HOMEWORK

Read McConnell and Brue (Chapter 36) and watch the following videos.

Other Helpful Videos

• Exchange Rate Practice

• Effect of fiscal policy on exchange rates

• Methods of currency devaluation

ASSESSMENTS AND ACTIVITIES

Problem of the Day: You will work cooperatively with your partner to construct a response to the following prompt.

• 1. Define each of the following terms: tariff, quota, current account, and capital account.

  2. Use diagrams to explain how tariffs and quotas are inefficient.

  3. Using an example, explain why the current account and capital account must balance.

Lecture

• The Foreign Exchange Market

ENRICHMENT

Related Readings

• David Hume's essay on the balance of trade

• Does Third World Growth Hurt First World Prosperity?

• Trade, competition, and living standards

• "In Praise of Cheap Labor"

• "The Case for Sweatshops"

• When Cheap Foreign Labor Gets Less Cheap ("Re-shoring")

• In Shift of Jobs, Apple Will Make Some Macs in U.S. ("Re-shoring")