Foreign Exchange Market

AP Economics Home Page

INTRODUCTION

Today we will study the foreign exchange market. Check out this video just for kicks.

HOMEWORK DUE TODAY

Assignments

1. Read: Krugman (Module 42-43)

2. Watch: The video lecture for today's topic (linked above).

3. Optional: The videos linked below.

Classic Hopkins

Other Helpful Videos

• Exchange Rate Practice

• Effect of fiscal policy on exchange rates

• Methods of currency devaluation

ASSESSMENTS AND ACTIVITIES

Formative Assessment (MCQ's): You will take a formal assessment during class. The assessment will consist of multiple-choice questions and one FRQ from an old AP Exam. Doing the problem of the day and ensuring that you understand it will help you prepare for today's formative assessment and help to ensure that you understand the concepts in this lesson.

Problem of the Day

Assume that the general price level in the United States falls relative to the price level in Japan, a trading partner. Use a correctly labeled diagram of the foreign exchange market for the U.S. dollar to show the impact of the change in relative prices on each of the following.

• 1. Demand for the dollar

  2. Price of the dollar (yen/dollar)

  3. How will the change in the price of the dollar you identified in (2) affect net exports in the United States? Explain.