1. Utilizing the two sources of information below, explain the factors that can affect the relative value of one currency to another in the global economy.
   1. Euro vs. US Dollar
   2. Lumen: Microeconomics
2. Again, using the same two sources, explain why U.S. presidents often favor a "lower dollar" over the course of their presidency.
   1. Explain the relationship between the relative value of the dollar and its relationship to U.S. exports and imports.
   2. Posit the effect of the relative value of the US dollar and the impact on US GDP. Using the equation for GDP, GDP = C + I +G + (X-M), which of the various components of GDP would be most affected by changing currency levels?

3:43 PM Wed Sep 28 O O 0 courses.lumenlearnlng.com ii 4 ': 87% E} Aer one year, bat is repaid with interest, so bank receives 42.4 million baht Bank converts baht back to dollars at Bank converts baht back to dollars, but exchmge rate of 40 baht/dollar, making now the exchange rate is 50 bahtldollar, $1.06 milion. so the bank has only $848,000. Bank repays $1 milion, plus 5% Bank repays $1 million, plus 5% interest, which is $1.05 million. interest. which is $1.05 million. Bank has $10,000or 400,000 Bank face: a loss of bahtleft over to cover expenses $1.05 mllion $848,000 = $202,000. and prot. Figure 1. International Borrowing. The scenario of international borrowing that ends on the left is a success story, but the scenario that ends on the right shows what happens when the exchange rate weakens. This process of borrowing in a foreign currency and lending in a domestic currency can work just fine, as long as the exchange rate does not shift. In the scenario outlined, if the dollar strengthens and the baht weakens, a problem arises. The righthand chain of events in Figure 1 illustrates what happens when the baht unexpectedly weakens from 40 baht/dollar to 50 baht/dollar. The Thai firm still repays the loan in full to the bank. But because of the shift in the exchange rate, the bank cannot repay its loan in US. dollars. (Of course, if the exchange rate had changed in the other direction, making the Thai currency stronger, the bank could have realized an unexpectedly large profit.) In 19971998, countries across eastern Asia, like Thailand, Korea, Malaysia, and Indonesia, experienced a sharp depreciation of their currencies, in some cases 50% or more. These countries had been experiencing substantial inflows of foreign investment capital, with 3:41 PM Wed Sep 28 . . . 1 88% diffen.com a Diffen Compare Anything > > Bank VS. Credit Union GO Edit Euro US Dollar Learn more > Nickname The single currency, local names Buck, greenback Ege (Finnish) Quid (Hiberno- English) Teuro (German) Ouro (Galician) Juro (Hungarian) Ewro Contribute to Diffen (Maltese) Edit or create new comparisons in Coins 1c, 2c, 5c, 10c, 20c, 50c, E1, E2 1c, 5c, 10c, 25c, 50c, $1 your area of expertise. Countries Eurozone US and overseas territories Log in > Notes 65, E10, E20, E50, E100, E200, $1, $5, $10, $20, $50, $100, $2 E500 (rare) Amount in E915 billion Over $800 billion circulation Bank vs Credit Union Governing bank European Central Bank Federal Reserve Pegged by 10 currencies Bosnia & Herz. 23 currencies convertible mark Bulgarian lev Cape Verdean escudo Central African CFA franc CFP franc EURIBOR VS LIBOR Comorian franc Danish krone (+2.25%) Latvian lats Lithuanian litas West African CFA franc Printer Various Bureau of Engraving and Printing VISA Mint Various United States Mint Visa vs MasterCard Stock Ticker EURUSD=X USDEUR=X Introduction The euro (sign: E; code: EUR) is The United States dollar (symbol: (from Wikipedia) the currency used by the $; code: USD) is the official Institutions of the European currency of the United States and Great Britain vs United3:43 PM Wed Sep 28 u. 4 'o? 87%C} courses.lumenlearning.com E Fluctuations in Exchange Rates Exchange rates can fluctuate a great deal in the short run. From February 2008 to March 2009, the Indian rupee moved from 39 rupees/dollar ito 51 rupees/dollar, a decline of more than onefourth in the value of the rupee on foreign exchange markets. We read earlier that even two economically developed neighboring economies like the United States and Canada can see significant movements in exchange rates over a few years. For firms that depend on export sales, or firms that rely on imported inputs to production, or even purely domestic firms that compete with firms tied into international tradewhich in many countries adds up to half or more of a nation's GDPsharp movements in exchange rates can lead to dramatic changes in profits and losses. So, a central bank may desire to keep exchange rates from moving too much as part of providing a stable business climate, where firms can focus on productivity and innovation, not on reacting to exchange rate fluctuations. One of the most economically destructive effects of exchange rate fluctuations can happen through the banking system. Most international loans are measured in a few large currencies, like US dollars, European euros, and Japanese yen. In countries that do not use these currencies, banks often borrow funds in the currencies of other countries, like US. dollars, but then lend in their own domestic currency. The lefthand chain of events in Figurel shows how this pattern of international borrowing can work. A bank in Thailand borrows one million US. dollars. Then the bank converts the dollars to its domestic currencyin the case of Thailand, the currency is the bahtat a rate of 40 baht/dollar. The bank then lends the baht to a firm in Thailand. The business repays the loan in baht, and the bank converts it back to US. dollars to pay off its original US. dollar loan. Bank borrows 1 million in US. dollars and agree to pay 5% interest. Bank conves to Thai baht at an exchange rate of 40 baht/dollar, making 40 million baht. # Bank lends 40 million baht at 6% interest 3:43 PM Wed Sep 28 ... 4 .~ 87%C} ED > Bank VS . Credit Union GO The US dollar (USD) is the official currency of the United States and the de facto currency for international trade and a reserve currency for much of the world. The Euro (EUR) is the currency of 22 European countries, including 17 countries in the European Union. This comparison focuses on the history and evolution, Related Comparisons central banking, amount of money in circulation and the exchange rate between 1. Bank vs Credit Union these two currencies. 2. EURIBOR VS LIBOR 3. Visa vs MasterCard Comparison chart 4. Great Britain vs United Kingdom 5. England vs United Kingdom Edit Euro US Dollar 6. APR vs Interest Rate Symbol E $ 7. Income vs Revenue 8. Itemized vs Standard Deduction ISO 4217 code EUR (num. 978) USD Official user(s) Eurozone (17) Austria Belgium United States and more DX Cyprus Estonia Finland France rackspace vmware technology. Germany Greece Ireland Italy Luxembourg Malta Netherlands Portugal Slovakia Slovenia Spain Outside the EU (7) Monaco San Marino Vatican City Akrotiri and Dhekelia ( x Inflation 1.9% (November 2018) 7.9% (Feb 2022) Nickname The single currency, local names Buck, greenback Ege (Finnish) Quid (Hiberno- II 0:00 / 0:00 English) Tours / Garman) AuIn D X X Retire to Portugal in 2022 Open Portugal, is a low-cost paradise where you can enjoy life. International Living3:42 PM Wed Sep 28 .. . 1 88% diffen.com a Diffen Compare Anything > > Bank vs. Credit Union GO Countries D X The Euro is the official currency of the Eurozone, which is made up of 17 of the 27 member states of the European Union. These countries are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the vital care Netherlands, Portugal, Slovakia, Slovenia and Spain. It is the sole currency of these by petco countries, and is used by 326 million people. It is also the sole currency of Montenegro and Kosovo, several micro states (Andorra, Monaco, San Marino, the Vatican City), and overseas territories of EU states: Mayotte, Saint Pierre and Miquelon, and Akrotiri and Dhekelia. The US dollar is the official currency of the United States and its overseas territories. It is also used as the sole currency in Palua, Micronesia and the Marshall Islands, and is Healthier pet. also used in Panama, Ecuador, El Salvador, East Timor, the British Virgin Islands, Healthier budget. Turks and Caicos Islands, Bonaire, Sint Eustatius and Saba. Here is the share of the Euro and the US Dollar in the worldwide foreign currency reserves held by sovereign governments: Currency composition of official foreign exchange reserves 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Latest data 2012 Q3 US dollar 71.0% 70.5% 70.7% 66.5% 65.8% 66.0% 66.4% 65.7% 64.1% 64.1% 62.1% 61.8% 62.1% 61.8% SIGN UP Euro 17.9% 18.8% 19.8% 24.2% 25.3% 24.9% 24.3% 25.2% 26.3% 26.4% 27.6% 26.0% 24.9% 24.1% Exchange Rates This table shows how many Euros could be exchanged for 1 US dollar from 1999 to 2011. For much of the past decade, 1 Euro has always been worth more than 1 US dollar. Euro value of 1 USD from 1999-2011 1.40 C 1.20 E 1.00 $ 60.803:43 PM Wed Sep 28 co. 4 4? 87%C} courses.lumenlearning.com 6 Exchange Rates, Aggregate Demand, and Aggregate Supply A central bank will be concerned about the exchange rate for three reasons: (1) Movements in the exchange rate will affect the quantity of aggregate demand in an economy; (2) frequent substantial fluctuations in the exchange rate can disrupt international trade and cause problems in a nation's banking system; (3) the exchange rate may contribute to an unsustainable balance of trade and large inflows of international financial capital, which can set the economy up for a deep recession if international investors decide to move their money to another country. Let's discuss these scenarios in turn. Foreign trade in goods and services typically involves incurring the costs of production in one currency while receiving revenues from sales in another currency. As a result, movements in exchange rates can have a powerful effect on incentives to export and import, and thus on aggregate demand in the economy as a whole. For example, in 1999, when the euro first became a currency, its value measured in US. currency was $1.06/euro. By the end of 2013, the euro had risen (and the US. dollar had correspondingly weakened) to $1.37/euro. Consider the situation of a French firm that each year incurs 10 million in costs, and sells its products in the United States for $10 million. In 1999, when this firm converted $10 million back to euros at the exchange rate of $1.06/euro (that is, $10 million >