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Ch 7: Foreign Exchange Market & Purchasing Power

About This Chapter

Our instructors developed this series of lessons to teach you about the foreign exchange market and purchasing power. We use study tools that make the learning experience more enjoyable.

Foreign Exchange Market & Purchasing Power - Chapter Summary and Learning Objectives

One of the challenges of doing business internationally is that there is no one common currency used and the value of one currency compared to another changes daily. Our subject matter experts created this series of lessons to teach you about the foreign exchange market and purchasing power. We supply a quiz at the end of each lesson to test your understanding of the material just studied. Also, you can ask questions of the teacher. When you are done with this chapter, you should understand:

  • The foreign currency exchange and exchange rates
  • Effects of exchange rates on currency appreciation and depreciation
  • How monetary policies affect exchange rates
  • Achieving trade balance and balance of payments
  • Purchasing power, purchasing power parity and the Big Mac Index
  • Cost benefits of doing business abroad vs. liabilities of foreignness

Lesson Objective
Foreign Currency Exchange: Supply and Demand for Currency Point out why money from different countries has different values and exchange rates.
Exchange Rate: Determination and Conversion across Countries Dissect exchange rate determination.
Currency Appreciation & Depreciation: Effects of Exchange Rate Changes Evaluate the effects of changes in exchange rate on currency appreciation and depreciation.
How Fiscal and Monetary Policies Affect the Exchange Rate Correlate Money Policies to Exchange Rates.
How Currency Changes Affect Imports and Exports Weigh the effects currency changes have on imports and exports.
Achieving Trade Balance: Trade Deficit and Surplus Examples Differentiate between trade balance, trade deficit and trade surplus.
Balance of Payments: Current Account & Measuring Foreign Trade Consider what balance of payments is and the four main trade components of a current account.
Balance of Payments with Financial Accounts: Measuring Foreign Trade Prepare an analysis of the relationship of balance of payment to foreign trade.
What is Purchasing Power? - Definition & Parity Theory Critique the concept of purchasing power.
Purchasing Power Parity & the Big Mac Index Develop the idea of the Big Mac Index and how to use it.
Cost of Doing Business Abroad vs. Liability of Foreignness Compare and contrast the cost benefits of doing business abroad with the liability of foreignness.

12 Lessons in Chapter 7: Foreign Exchange Market & Purchasing Power
Test your knowledge with a 30-question chapter practice test
Foreign Currency Exchange: Supply and Demand for Currency

1. Foreign Currency Exchange: Supply and Demand for Currency

In this lesson, you'll learn why money from different countries has different values of exchange. We'll cover the supply and demand for currencies and how changes in supply and demand can affect the exchange rates between currencies.

Exchange Rate: Determination and Conversion Across Countries

2. Exchange Rate: Determination and Conversion Across Countries

Understand what exchange rates are and the different types that can be used by governments and countries. See how they operate and how the conversion process works across countries.

Currency Appreciation & Depreciation: Effects of Exchange Rate Changes

3. Currency Appreciation & Depreciation: Effects of Exchange Rate Changes

Find out how changes in the exchange rate can affect the economy and your own individual situation. Discover how these currency changes can increase and decrease your purchasing power and standard of living.

How Fiscal and Monetary Policies Affect the Exchange Rate

4. How Fiscal and Monetary Policies Affect the Exchange Rate

Discover how fiscal and monetary policy can affect the exchange rate and ultimately the amount of money it costs you to buy goods and services. Find out the three paths that both fiscal and monetary policy can travel to impact the exchange rate.

How Currency Changes Affect Imports and Exports

5. How Currency Changes Affect Imports and Exports

Learn about how currency changes can affect imports and exports. Find out how this affects you. Discover what happens when a dollar is strong compared to other currencies and what happens when it is weak.

Achieving Trade Balance: Trade Deficit and Surplus Examples

6. Achieving Trade Balance: Trade Deficit and Surplus Examples

Find out what trade balance, trade deficit, and trade surplus are. Learn about some recent examples that help clarify trade deficit and surplus. Explore what countries have a surplus and what countries have a deficit.

Balance of Payments: Current Account & Measuring Foreign Trade

7. Balance of Payments: Current Account & Measuring Foreign Trade

Find out what the current account is and the four main foreign trade components that it is comprised of. Similar to your bank account, learn how the current account is measured and what a deficit and surplus mean when talking about this economic indicator.

Balance of Payments with Financial Accounts: Measuring Foreign Trade

8. Balance of Payments with Financial Accounts: Measuring Foreign Trade

Learn about the balance of payments and the two key components that make it up. Discover what the financial/capital account is and how it relates to foreign trade and surpluses and deficits.

What is Purchasing Power? - Definition & Parity Theory

9. What is Purchasing Power? - Definition & Parity Theory

In this lesson, we'll be looking at purchasing power, which is used for computing the value of currency. After the lesson, you can test your knowledge with a short quiz.

Purchasing Power Parity & the Big Mac Index

10. Purchasing Power Parity & the Big Mac Index

In this lesson, we explore the Big Mac index, which analyzes whether currencies are at their correct levels using the theory of purchasing-power parity. We discuss the index and look at examples of how to read and use it.

Cost of Doing Business Abroad vs. Liability of Foreignness

11. Cost of Doing Business Abroad vs. Liability of Foreignness

In this lesson we'll address the costs of doing business abroad (CDBA) and the liability of foreignness (LOF). We'll discuss and analyze each and look at their effects on international corporations.

Required Assignments Reminder

12. Required Assignments Reminder

Sorry for the interruption to your course progress! We wanted to make sure you knew this course has a written assignment requirement in order to be completed. Read on to learn where to find these assignments and how to submit them.

Chapter Practice Exam
Test your knowledge of this chapter with a 30 question practice chapter exam.
Not Taken
Practice Final Exam
Test your knowledge of the entire course with a 50 question practice final exam.
Not Taken

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