Special Topics in Economics Econ. 491

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Special Topics in Economics Econ. 491

• Chapter 1
• Introduction to International Macroeconomy

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• I. MACROECONOMICS FINANCE
• Are we involved with international economics in
  our daily lives?
• How the international finance be a part of the
  international economics?

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• WHY STUDY EXCHANGE RATE POLICY?
• - What is the exchange rate?
• - When do we need the exchange rate?
• - How the exchange rate policy is important?

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• IS THERE ANY LINK BETWEEN EXCHANGE RATE POLICY
  GLOBALIZATION?
• - The relationship between international
  financial markets exchange rate

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• Definitions
• Exchange Rate
• The price of one currency in terms of another
  currency.
• Foreign Exchange Market
• A market in which trading of currency and bank
  deposits denominated in particular currencies
  takes place.
• Currency Appreciation the increase in its value.
• Currency Depreciation the fall in its value.

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• When currency appreciates, the country's goods
  abroad (its exports) become more expensive and
  foreign goods in that country (its imports)
  become cheaper.
• ? in EXR ? ? Exports and ? Imports
• When currency depreciates, the country's goods
  abroad (its exports) become cheaper and foreign
  goods in that country (its imports) become more
  expensive.
• ? in EXR ? ? Exports and ? Imports
• Result Net Exporting countries prefer low EXR,
  while net importing countries prefer high EXR.

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• II. Factors Affecting Exchange Rates in the Long
  Run
• 1. Relative Price Level
• A rise in a country's price level (relative to
  the foreign
• price level) causes its currency to depreciate.
•  2. Trade Barriers (Tariffs and Quotas)
• Tariffs and quotas cause a country's currency to
• appreciate in the long run.
•  

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• 3. Preferences for Domestic versus Foreign Goods
• Increased demand for imports causes the domestic
  currency to depreciate.
• Increased demand for a country's exports causes
  its
• currency to appreciate.
• 4. Productivity
• As a country becomes more productive (relative to
  the
• other country) its currency appreciates.

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 Factor Change in Factor Response of the Exchange Rate
Domestic Price Level ?
Trade Barriers ?
Import Demand ?
Export Demand ?
Productivity ?