copyright mcgraw-hill/irwin, 2002 u.s. export transaction u.s. import transaction balance of...
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Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
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EXCHANGE RATES,THE BALANCE OF PAYMENTS,
AND TRADE DEFICITS
21C H A P T E R
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
U.S. EXPORT TRANSACTIONAssume $2 = £1
$300,000 in American computers purchased by a British buyer for £150,000£150,000 check drawn on British bank to pay for computers
£150,000 check is exchanged for $300,000 at a New York bank
New York bank sends £150,000 check to London bank for future sale to buyers who need pounds
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
U.S. IMPORT TRANSACTIONAssume $2 = £1
£150,000 in British compact discs purchased by a U.S. buyer for $300,000£150,000 check purchased from U.S. bank to pay for CDs for $300,000£150,000 check is exchanged for CD purchase from supplierCD firm deposits £150,000 check to British bank
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
Points to remember:American exports create a foreigndemand for dollars which creates asupply of foreign currencies whichare available to American buyers...
Financing an American exportreduces the supply of foreigncurrencies available and increasesthe domestic money supply.
U.S. IMPORT TRANSACTION
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
BALANCE OF PAYMENTS
Current AccountTrade Deficits & SurplusesBalance on Goods & ServicesBalance on Current Account
Capital AccountBalance on Capital AccountOfficial ReservesBalance of Payment Deficits &
Surpluses
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
Australia Brazil
Netherlands
Canada China Germany Japan Mexico
-80 -70 -60 -50 -40 -30 -20 -10 0 10
GLOBAL PERSPECTIVEU.S. Trade Balances in Goods,Selected Nations, 1999
Source: Department of Commerce
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
Flexible Exchange Rates
Flexible or Floating-
Exchange-Rate System
Fixed Exchange-Rate System
Depreciation & Appreciation
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
THE MARKET FOR CURRENCYP
Q
D
SEXCHANGE
RATE: $2 = £1D
oll
ar p
rice
of
on
e p
ou
nd
Quantity of pounds
3
2
1
Dollardepreciates
Dollarappreciates
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
DETERMINANTS OF EXCHANGE RATESChanges in TastesRelative Income ChangesRelative Price Changes
Purchasing Power Parity Theory
Relative Interest RatesSpeculationFlexible exchange rates automaticallyadjust to eliminate balance of payments deficits or surpluses.
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
DISADVANTAGES OFFLEXIBLE EXCHANGE RATES
Uncertainty and Diminished Trade
Terms of Trade Changes
Instability
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
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EndShow
FIXED EXCHANGE RATES
Fixed Exchange Rates
Use of Reserves•Currency Interventions
Trade Policies
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
EXCHANGE CONTROLS & RATIONING
•Distorted Trade•Favoritism•Restricted Choice•Black MarketsDomestic Macro Adjustments
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
INTERNATIONAL EXCHANGE-RATE SYSTEMS
The Gold Standard: Fixed Exchange Rates 1879 - 1934 Devaluation
The Bretton Woods System IMF - Pegged Exchange Rates
Official ReservesGold SalesIMF Borrowing
Managed Floating Exchange Rates G-7 (G-8) Interventions
Copyright McGraw-Hill/Irwin, 2002
U.S. Export Transaction
U.S. Import Transaction
Balance of Payments
Flexible Exchange Rates
The Market for Currency
Determinants of Exchange Rates
Fixed Exchange Rates
Exchange Controls and Rationing
International Exchange Rate Systems
Recent U.S. Trade Deficits
Key Terms
PreviousSlide
NextSlide
EndShow
RECENT U.S. TRADE DEFICITS
Causes of the Trade Deficits•American Economic Growth•Declining U.S. Savings Rates
Implications of U.S. Trade Deficits
• Increased Current Consumption
• Increased U.S. Indebtedness
balance of paymentscurrent accountbalance on goods & servicestrade deficittrade surplusbalance on current accountcapital accountbalance on capital accountofficial reservesbalance of payment deficits & surplusesflexible-or-floating- exchange-rate system
fixed exchange-rate systempurchasing power-parity theorycurrency interventionsexchange controlsgold standarddevaluationBretton Woods systemInternational Monetary Fund (IMF)managed floating exchange rates
ENDBACKCopyright McGraw-Hill/Irwin 2002