Key Terms
WORKED EXAMPLE (weaker dollar on exports)
A truck costs $25,000 in the U.S. At $1.50 per British pound, the U.K.
WORKED EXAMPLE (weaker dollar on imports)
A six-pack of imported beer costs 6.00 pounds. At $1.50/pound, the U.S.
Example
If Japan's GDP is 500 trillion yen and the market rate changes from 108 yen/dollar to 90 yen/dollar, Japan's GDP in doll
Appreciating
Currency buys more of other currencies; also called strengthening
Depreciating
Currency buys less of other currencies; also called weakening
Exchange rate
The price of one currency expressed in terms of another currency
Arbitrage
Buying goods or currencies across borders to exploit price differences and earn a profit; the mechanism that pushes pric
Purchasing power parity (PPP)
The exchange rate at which internationally traded goods cost the same across countries; used for stable cross-country GD