MAcro CHAPTER 6.2:

Exchange Rates

CHAPTER SUMMARY

You are probably already familiar with the idea of exchange rates, which tell us how much of one currency is worth how much of another. As of this writing, for example, 23,635 Vietnam Dong = 1 US Dollar. This means that, if someone in Vietnam today wants to buy a Netflix account for 10 USD, they will need to spend 236,350 VND ($10 USD * 23,635 VND per USD).

Exchange rates change over time because the value of currencies change. When I first arrived in Vietnam in 2017, the exchange rate was 22,266 VND = 1 USD. If someone wanted in Vietnam to buy that same Netflix account back then, it would have cost them 222,660 VND - less than today (we are ignoring inflation here). This means that, over time, it has gotten more expensive for Vietnamese people to buy things in USD (222k -> 236k for the same product).

This means that, compared to each other, USD has appreciated (become more valuable) and VND has depreciated (become less valuable). As a rule, if one currency in a pair appreciates, the other has to depreciate, and vice versa.

CHAPTER VIDEOS

(Just section 6.2)

CHAPTER READINGS

AP Macro Unit 6.2 Study Guide: Exchange Rates | FiveableLearn about exchange rates and more in this AP Macro Unit 6.2 guide!

Please do not focus on the example at the bottom - I think it is super unclear and possibly confusing!

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CHAPTER PRACTICE

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